Thinking About Getting a Mortgage from a Private Lender? Here’s What You Need to Consider!

Getting a mortgage from a private lender can be a great option if you’re looking for more flexibility or don’t meet traditional bank requirements. But there are some important things to keep in mind before jumping in!

Key Considerations:

Interest Rates: Private lenders often charge higher interest rates than traditional banks. Make sure you’re clear on what rate you’re agreeing to and how it will impact your payments.

Loan Terms: Private mortgages tend to have shorter terms, usually between 1-3 years. Have a solid exit strategy in place for when the term ends—whether it’s refinancing or selling.

Fees and Costs: Ask about additional fees like appraisal costs, legal fees, or lender fees. These can add up quickly and affect your total cost.

Collateral and Risk: Private lenders are more focused on the asset (your property) than your personal credit score. But this also means they may require more collateral or impose strict conditions if you fall behind.

Flexibility: Unlike banks, private lenders can offer customized solutions. This is ideal for investors or those with unique financial situations, but be sure you fully understand the terms!

Relationship and Reputation: Make sure your lender has a solid reputation. Check reviews, ask for references, and ensure their lending practices are fair and transparent.

Pro Tip: Always read the fine print and have a legal expert review your contract before signing anything. A little caution now can save you big headaches later!

Private lending can be a powerful tool in your real estate investing journey—just make sure you’re prepared and informed!

SOURCE: ROMMEL PRAVIA

What is the difference between a level 1 and a level 2 mortgage agent?

A Level 1 mortgage agent can help you get a mortgage from a traditional lender, for example, a bank or a credit union.

Some consumers may not be approved for a mortgage by a bank or credit union and need to turn to different lenders, such as alternative or private lenders. If this is your situation, you must work with a level 2 mortgage agent or a mortgage broker. A Level 2 mortgage agent or a mortgage broker can help you get a mortgage from all mortgage lenders, including alternative and private lenders.

A syndicated mortgage is when two or more people invest in a single mortgage against one property. Developers use these mortgage loans to get funding for large-scale real estate development projects. Syndicated mortgage investments can be extremely risky for investors, given that the project is often considered high-risk by traditional lenders, such as banks.

Can you help me get my money back?

FSRA has no jurisdiction or authority to recover any funds on your behalf. If you’re suspicious about a fee, penalty or another charge you paid, seek out independent legal counsel or contact the Law Society of Ontario (LSO) for legal advice.

What are my rights after I sign a mortgage contract?

A mortgage agreement is a legally binding contract. Once signed, you are responsible to fulfil your obligations. The best way to protect yourself is to read the document before signing and ask questions. Before signing, a licensed mortgage -broker/agent must disclose any material risks of the mortgage agreement in writing and in plain language. Be sure to read all documentation and ask questions before signing

Must I pay a fee in advance?

Mortgage brokerages may charge an up-front fee or retainer for loans above $400,000 for services to be rendered or expenses to be incurred. This fee should not be paid in cash and must be paid directly to the mortgage brokerage, not the agent or broker.

SOURCE: FSRA

A "power of sale property" is a home that a lender is selling to recover funds after the homeowner has defaulted on their mortgage. In this legal process, the lender, not the homeowner, sells the property to pay off the outstanding debt, legal fees, and other liens. Power of sale is the most common way lenders recover funds from defaulted mortgages in places like Ontario because it is a faster and less complex process than a judicial foreclosure. 

How a Power of Sale Works

• Default in payment: The homeowner fails to make their mortgage payments. 

• Lender exercises the clause: The lender can use a "power of sale" clause in the mortgage agreement. 

• Lender sells the property: The lender takes control of the property and sells it. 

• Funds distribution: The proceeds from the sale are used to pay the mortgage balance, legal fees, and other expenses. 

• Surplus funds returned: Any remaining profit after all debts are paid is returned to the original homeowner. 

Key Differences from Foreclosure

• Title: In a power of sale, the lender does not take legal title to the property. In a foreclosure, the lender takes legal title and becomes the owner of the property. 

• Process: Power of sale avoids the more cumbersome and time-consuming route of a full judicial foreclosure. 

• Benefits for Lenders: The faster process helps lenders recover funds more quickly. 

Considerations for Buyers

• "As-is" condition: Power of sale properties are often sold "as-is," meaning the buyer is responsible for any repairs. 

• Property inspection: It is crucial to get a professional property inspection to understand the home's condition. 

• Legal counsel: It is highly recommended to have a real estate lawyer represent you throughout the process to vet the property and ensure you receive good title. 

• Complexity: Purchasing a power of sale property can be more complex than a traditional sale. 

Residential Properties

A provincial land transfer tax applies to all properties in Ontario, including Toronto.

A separate Toronto land transfer tax applies to Toronto properties only (An easy-to-use calculator and other options for determining the tax are provided below).

First time home buyers of new AND re-sale homes will receive a rebate of the Toronto land transfer tax of up to $4,475 (equivalent to the Toronto land transfer tax payable on a $400,000 property).

NOTE (Provincial Land Transfer Tax): First time home buyers may be eligible for a rebate of the provincial land transfer tax (PLTT) up to $4,000.

To calculate the total LTT payable for Residential properties, choose one of the following:

ADD THE FOLLOWING TOGETHER:

PROVINCIAL LAND TRANSFER TAX

(Applies to all Ontario properties, including Toronto)

0.5% on the first $55,000

plus 1.0% of the amount from $55,001 to $250,000

plus 1.5% of the amount in excess of $250,001 to $400,000

plus 2.0% of the amount in excess of $400,000

plus 2.5% of the amount in excess of $2,000,000

TORONTO LAND TRANSFER TAX

(Applies to Toronto properties only)

0.5% on the first $55,000

plus 1.0% of the amount from $55,001 to $250,000

plus 1.5% of the amount in excess of $250,001 to $400,000

plus 2.0% of the amount in excess of $400,000

plus 2.5% of the amount in excess of $2,000,000

Source: TRREB 

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