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What Are Private Mortgages?

Private mortgages are loans obtained from another individual or company instead of borrowing from a bank or financial institution. A private mortgage lender is an individual or institution that lends its own money out to others. In that case, expert private mortgage brokers at Shant Nalbandian can connect you with a broad network of private mortgage lenders to find the loan that fits your financial needs.

Whether you live in the big city such as Toronto or a small town of Ontario, getting a private mortgage is always a wise decision. It is very common for private mortgage lenders not to lend money to everyone, and this is where private mortgage brokers are helpful. However, private home loans are a great way to get the funds you require from a reputable source. Individuals with special loan requirements may face difficulties since the conventional lending industry has many strict lending guidelines. On the other hand, private lenders work closely with their purchasers to deliver their special needs.

Private Mortgages in Toronto are typically transferred to Mortgage Investment Corporations, where money is brought in by investors to fund mortgages. Private lenders do not require down payments from the public, so they are not managed by the federal or provincial governments.

In comparison to traditional lenders, they charge a higher interest rate and fees. They often serve as a great bridge before you rely on traditional mortgage lenders.

What Are the Possible Payment Options for Private Mortgages in Toronto?

In some circumstances, a person can even prepay all the interest on a loan when it's funded and deduct that amount from the total loan amount so that there is no monthly payment to make.

Despite the benefits of a monthly interest-only plan, an individual may choose to defer payments on a private mortgage Toronto to the end of the loan term, which is known as an accrued interest arrangement.

It is also possible to set up an amortized blended payment plan, which unifies interest and principal payments into a single monthly payment, just like a traditional mortgage, in order to build up additional equity on home.

You may be able to lower your monthly payments with a blended amortized mortgage if you extend the amortization period up to 40 years.

"Find out more information on Private Mortgage in Toronto by contacting Shant Nalbandian."

What Is the Maximum Tenure of Getting Private Mortgage in Toronto?

Private mortgages are usually short-term loans, which typically last from a few weeks to several months, and some may even last for over three years. The mortgage loan will go into default upon the end of the term, or you may choose to renew the mortgage with the current lender.

The typical private mortgage tenure is one year, with a minimum of six months and a maximum of three years possible. However, short-term mortgage rates can even be higher sometimes.

It is common for a borrower to refinance mortgage with a new lending partner to repay the private mortgage. The objective is to develop a plan that allows to exit a private mortgage as soon as possible and secure a conventional mortgage at a lower interest rate.

What Are the Interest Rates for A Private Mortgage?

The interest rates on private mortgage in Toronto are determined by the loan amount, the cost of the property, the location of the property, and other factors as well. Private mortgage interest rates can range from 3.99% to as high as 13% for a first mortgage, and as low as 6.99% to as high as 18% for a second mortgage, depending on the many factors that matter to each mortgage lender.

Private investors are able to offer a better interest rate than a MIC since a MIC needs to pay a higher rate of return while simultaneously taking extra interest.

Since private lenders in Toronto typically charge higher interest rates than conventional mortgage lender, borrowers only look for a private lender when they get turned down by the banks and by other lenders such as Duca Credit Union, Equitable Bank, or Hometrust.

How to Calculate Toronto's Private Mortgage Payments?

For example:

Let’s say a homeowner in Toronto needs to borrow $300,000 to buy a property valued at $400,000 and the bank turned them down because either the person has bad credit or is self-employed and has non-traditional income documentation. Here's a simple formula to figure out how much the monthly payments would be:

Monthly Payment and Interest Calculation Formula:

Monthly Payment = Total Interest Amount for the Year ÷ Number of Months in the Mortgage Term

First, calculate the total interest for the year:

Total Interest Amount for the Year = Annual Interest Rate x Total Mortgage Amount

Total Interest Amount for the Year = 5.5% (monthly interest rate) x $300,000 (total mortgage amount)

Total Interest Amount for the Year = $16,500

Second, calculate the monthly payment amount:

Monthly Payment = $16,500 ÷ Number of Months in the Mortgage Term

Monthly Payment = $16,500 ÷ 12 months

Monthly Payment = $1,375

The calculation shows, at the end of 1-year term a person would have paid a total of $16,500 of interest by making 12 monthly payments of $1,375 a month. And still owe the entire $300,000 in principal back to the lender.

Or you can simply use our mortgage calculator to get a quick estimate on your monthly mortgage payments.

If one's credit score is below 580/600, the person is unlikely to get approval from a prime lender and even institutional lenders for bad credit will probably deny it.

A person who has bad credit is luckily able to turn to lenders who can offer them with various mortgage options.

Mortgage process can be hectic sometimes, and to deal with it we suggest you contact our private mortgage brokers team and get ideal assistance regarding private mortgage Toronto.

How to Qualify for a Private Mortgage Loan in Toronto?

Getting a private mortgage loan in Toronto is usually far more straightforward than getting a standard mortgage loan. Typically, in Toronto, the monthly payment is solely based on the interest charges, resulting in lower expenses than a conventional mortgage.

Private lenders usually provide mortgage on deals that banks see as being too risky. Due to such risks, lenders place more emphasis on different factors than banks.

Private lenders look for the following characteristics when assessing a potential borrower and the mortgage they are seeking:

  • Property value and type of property. The most significant factor private mortgage lenders observe when choosing to approve or reject a borrower’s application is their credit score. Especially if the borrower has bad credit or poor credit, the property value, type, and condition play a substantial role in reducing the lender's risk.
  • Down payment and loan to value (LTV) for new purchases. Usually, private lenders won't provide a mortgage on a property that has a loan-to-value higher than 85%. That means the person will need at least 15% to put down as a down payment on the property. Many private lenders limit their LTV to no more than 75% or 80%.

Saving on interest payments is usually possible by investing a larger down payment. The increased investment also tends to indicate increased confidence of the lender, which makes it more likely for them to grant a private mortgage at a lower interest rate. Therefore, a low interest rate translates to a lower closing cost, which is why a higher down payment is typically advised.

  • Monthly Income. Unlike most banks, private mortgage lenders accept both conventional and non-conventional income including self-employed business owners or commission-based employees. Because non-traditional income types are reported differently, they can be hard to prove and lenders have to accept essential estimates using detailed information.

These behavioral tips will also help you get a private mortgage loan in Toronto:

  • Make sure the property is kept clean and uncluttered when the inspector or appraiser visits the property and try to satisfy the lender to maximize the value.
  • In most cases, a mortgage broker will request complete information to determine whether it would be possible to receive a mortgage approval.
  • Do not attempt to hide any important information from the broker or lenders. Be completely open and honest with them.
  • In case of having any other properties disclose this to the broker and to lenders as they will appear in the credit report.

Shant Nalbandian can help you get immediate approval on a private mortgage in Toronto and find the best private lenders for your particular financial situation to provide you with the best possible rates.

What Are the Pros and Cons of Private Mortgage Loan?

Advantages of Private Mortgage Loan:

  • Easy Qualification Process. Beginners may have difficulty qualifying for a mortgage loan from a traditional lender. The bank expects a lot of documentation as well as the borrower's finances must look good for the lender's approval. Regardless of how well a person can repay the loan, mainstream lenders must verify that the person can pay it back, and they have certain criteria for verifying that.
  • Financial Advantages. A loan among family members can also be beneficial. Saving money is possible when lenders are able to lend to family members. Their interest rates are lower than conventional lenders. Just don’t forget to follow IRS rules if planning to keep rates low; if the loan doesn’t meet the Applicable Federal Rate (AFR), there could be tax implications.
  • Debt Consolidation. In case of debt consolidation mortgage, a private mortgage can be taken out using home equity. In comparison to credit cards, student loans and many other higher interest debts, this loan has a much lower interest rate. By taking out a consolidation loan at a lower interest rate, a person can consolidate multiple higher interest bad debts into one much lower monthly payment. As a result, the cash flow will increase and the amount owed will be paid down faster.
  • No minimum credit score requirements. Private lenders may require a good credit score, but they often approve borrowers based on the value and profitability of the property.

Disadvantages of A Private Mortgage:

A private mortgage lender has the following disadvantages:

    • Fees of The Broker & Lender. To further secure the investment, the lenders charge a separate fee annexed to the total amount of the loan. In addition to the brokerage service fee, a final mortgage amount is advanced to the borrower when the broker’s commissions are collected. The renewal of a mortgage might incur additional fees.
    • High Interest Rate. In contrast to banks and other institutional lenders, private mortgage lenders face greater risk to their investments. Hence, private mortgage rates are higher than those charged by traditional banks.

Why Private Mortgage Lenders Are Recommended?

Those with credit scores below 680 are likely to need a private lender. Mortgage lenders can use the credit score to assess the financial status of borrowers. This can easily demonstrate whether a person should get an approval on a mortgage or not.

Your credit score can be improved in certain ways:

  • No outstanding payments
  • A low credit utilization rate
  • A low (or zero) balance on credit cards.

CMHC mortgage insurance requires a minimum credit score of 680. Since many B Lenders have only insured mortgages, those who cannot get coverage from CMHC are unable to apply. In spite of a 20% down payment, lenders may require mortgage insurance.

Getting a conventional loan could be your best option. However, if you wish to protect your finances, private mortgages may be the perfect solution. Most people used to think of private mortgages as the last resort option, but that is no longer the case. Private mortgages are ideal for anyone and everyone, especially if you want a personalized experience and an easy-to-understand process.

Traditional lenders differ from private lenders in many ways, and depending on the circumstances, these differences may play a greater role.

  • Easy Application Method. Private lenders in Toronto have online applications that don't examine a person's entire financial picture, but rather are concerned with lending money to those who need it.
  • Personalized Service. Generally speaking, a private lender provides a much more personalized service. They'll make sure the situation is understood in-depth so that they can come up with the best solution.
  • Freedom of Choice. The best part of a private mortgage is that you can choose who to work with. Typically, traditional lenders work with only one bank, this can seem claustrophobic. With private mortgages, there are many options available.

What Are the Types of Private Mortgage Lenders?

Below are the three most common types of private mortgage lenders:

  • Individual lenders. People investing their own personal funds in private lending are generally thought of as individual lenders.

  • Mortgage investment corporation (MIC). Mortgage Investment Corp. is a lending institution in which a group of individuals pools together their individual funds in order to invest into several mortgage transactions at the same time as long as the borrowers satisfy some criteria to qualify for the loan.
  • Syndicate investors. Syndicate investors are individuals who pool their personal funds to form a group in order to invest in one mortgage.

Why Is It Recommended to Opt a Private Mortgage Broker in Toronto?

Private mortgage agents help borrowers for many reasons. Here are some of the most common reasons to consider private mortgage broker such as Shant Nalbandian:

  • The urgency of getting money quickly and not able to go through a very long approval process and risk not being approved.

  • You have poor credit and the bank will not approve you.

  • The bank does not consider all of the income if one declares the income in an nontraditional way, or self-employed.

  • Only require a short-term loan.

  • Purchase a property for which a traditional bank or institution won’t lend on account of its non-traditional characteristics.

Get Instant Approval for Private Mortgages in Toronto By Shant Nalbandian:

The lowest mortgage rates and loans are offered by Shant Nalbandian, one of the leading mortgage experts and financial advisors in Ontario. Whether it's about refinancing a mortgage, consolidating debt, deciding on a second mortgage, or obtaining a home equity line of credit or looking for a private mortgage in Toronto, we provide exceptional solutions for your different financial needs. Having relationships with financial institutions across the financial spectrum to provide choice and opportunity.

Shant Nalbandian is a Toronto based mortgage broker and financial advisor with multiple years of experience helping clients realize their financial dreams. Since every financial situation is unique, Shant Nalbandian and his team treat each client as an individual and provide unexceptional services.

You can apply for private mortgage in Toronto easily. To get in touch with an experienced private mortgage broker, call us (416) 894-3976, or email us info@snlending.ca.

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