Deciding to get a mortgage when buying a house in Cambridge is usually a choice made with very little thought, but the choices of which kind of mortgage to get are seemingly endless. Choosing a mortgage type is a difficult decision including a variety of factors you may not even know exist; fixed or variable interest? How long will the payback period be? When will you think to renegotiate the mortgage? Will the mortgage come from a private lender or a bank? To the unaware borrower, a private mortgage sounds like something very secretive, but it is not. It is important to know what a private mortgage is, and whether or not they might be the right choice for you. 

 

Simply put, a private mortgage is a mortgage that is taken out with an individual or business instead of through a traditional bank. In Canada, there are five main financial institutions to choose from for mortgages, Royal Bank of Canada (RBC), Toronto Dominion (TD), Canadian Imperial Bank of Commerce (CIBC), Scotiabank and Bank of Montreal (BMO). This means that these five companies compete side by side for your mortgage, and hold much of the say for how mortgages work in the country in general. A private mortgage is not controlled by one of these few businesses, and does not have to follow their traditional rules.

 

 

There are many reasons homeowners and investors alike are choosing to take out a private mortgage instead of a conventional bank mortgage. 

 

Private mortgages tend to be the mortgage of choice for people choosing to invest in a property to "flip it.” Most banks are weary of giving mortgages to houses with little property value attached, which is the case for the worn-down, inexpensive houses that investors seek out. When banks do not see the mortgage being in some way valuable to them, investors can turn to private mortgages. Similarly, the process of getting a mortgage through a bank can be excessively long and tedious, and for investors who want to quickly take a house off the market, waiting is not a choice. Many private mortgage lenders can approve investors within days, making this a preferred choice for those looking for financial support in a hurry.

 

Many private mortgages can be lent for a comparatively short amount of time. Traditional mortgages can span up to 25 years, but are rarely shorter than 10. Banks are well aware that the longer the mortgage exists, the longer they are paid interest fees, and they will do everything they can to ensure a long mortgage period. Private mortgages terms however can be between 1-3 years, the ideal choice for property flippers or investors who only foresee owning the property for a short amount of time.

 

Private mortgages are also the ideal mortgage choice for Cambridge residents with bad credit. Having a poor credit score can undeniably make or break the chances of getting a mortgage through a bank. However, private mortgage lenders are willing to overlook a poor credit score so that a borrower can get the mortgage they need. By choosing to get a private mortgage, many people can use this as a way to repair their credit score for future investments, using the mortgage as a stepping-stone for a stronger financial future.