What you need to know about an alternative or private mortgage?

Borrowers who are unable to qualify for a traditional bank mortgage may need to consider an alternative or private mortgage for their financing. If this is your case, remember that these mortgages are supposed to be a short-term financing solution. These loans are often easier to qualify for and can be completed in a short period of time, keep in mind though, they do come with higher interest rates and fees. It’s always suggested that you work with an experienced mortgage professional and a knowledgeable lawyer as alternative/private loans come with additional conditions and restrictions.

Be informed about a private mortgage

Before getting an alternative or private mortgage, be aware of the following:

• An alternative or private mortgage is a temporary option and should only be kept for one or two years until you fix your finances or credit in order to refinance at the bank.
• Private mortgage is often based on the accumulated equity in your home, and not your credit or income.
• Most mortgages are interest only, so you are paying to borrow the money and not paying down on the amount you borrowed.
• Fees are usually higher than with a traditional mortgage. Additional fees include late payments, laps in insurance or property tax.
• Consider a realistic “Exit Strategy” to get out of the alternative or private mortgage. This way you can create a plan you should be working towards and get a lower rate option.
• Always work with a Level 2 mortgage agent when considering an alternative/private mortgage.

What could happen if you are unable to “exit” a private mortgage?

What to watch out for with a private mortgage?

Pay attention to the details of your mortgage contract: it could save you money or costs you money. Always ask yourself the following:

1.  What are all the fees associated with getting and closing on your mortgage?
2. What happens if I miss a payment?
3. Is my approval based on my equity or my ability to make the interest payment?
4. What is the costs for being late or missing a payment?
5. How long after I default on the mortgage does the power-of-sale process start?
6. Is my exit plan achievable? For example, do you have a plan to increase you income by maturity? Do you have the income to reduce your debts and fix your credit during the loan term? Is you goal realistic and can be achieved before the end of the term? The plan you create is vital to getting out of a private mortgage, it give you the qualifications you need to refinance with a bank.

The mortgage agent you decide to work with should give you a clear explanation of the terms, conditions, and fees associated with your contract. They should also be able to point out all of the risks, why they place you in a particular mortgage, and work with you beyond your mortgage closing to guide your to refinance.

Ask questions when getting a private mortgage?

Here are some key questions you should ask your mortgage agent/broker when getting an alternative or private mortgage

1. Why are you considering a private mortgage and not a traditional mortgage?
2. What are the terms? Length of time, interest rate, repayment schedule, direct deposit, collateral, guarantors, etc.
3. What are the fees associated? Lender, broker, etc.
4. Am I able to renew for another term at maturity?
5. What are the renewal fees?
6. Do I have an experienced layer to close on my mortgage transaction?
7. What happens if I’m late and/or default on my mortgage payment? Could I loose my home?
8. How long do I have to consider the mortgage contract and run it by my lawyer?
9. What if I an unable to exit at the end of the term?
10. What If I complete renovations on my home? How does this impact my mortgage?
11. Am I able to get a traditional mortgage at maturity?
12. Will I need a co-signer in order to refinance?

Getting an alternative/private mortgage should not be taken lightly. Often getting back to a traditional lender involves effort and dedication on your part.

Conclusion

In conclusion, securing an alternative or private mortgage can be a viable solution for borrowers who may not qualify for traditional financing. However, it’s important to understand that these loans come with higher costs, additional fees, and potential risks. They are designed as short-term solutions, and the key to success is having a clear exit strategy and a plan to improve your financial situation so you can refinance with a traditional lender.

Working with a knowledgeable mortgage agent and legal professional can help you navigate this complex process, ensure you’re well-informed, and avoid costly mistakes. Don’t hesitate to ask the necessary questions to fully understand your obligations and options.

If you’re considering an alternative or private mortgage, reach out today for a free consultation. Let’s discuss your options and help you develop a clear plan to secure the best possible outcome for your financial future.

Don’t wait—take the first step toward refinancing success!