When deciding on private mortgages for your Oakville home, one big
factor comes into play; there isn’t a traditional bank attached to your loan!
This can mean many things to many people, but it is important to consider a few
things before jumping on a loan of any kind.
There are many differences between private mortgages and their traditional
counterpart, but the most obvious is, of course, that private mortgages do not involve
a bank. Typically, bank mortgages are more tedious to acquire and have stricter
rules and penalties. Banks are cautious when giving money to people who are
unemployed or have a poor credit score, and often factor in outside features to
someone’s life when coming up with an appropriate mortgage amount. It is
possible to have a large sum of money saved for the purchase of a house, just to
have a bank deny a mortgage due to outside factors.
Poor Credit Scores
Traditional banks take into serious consideration the credit scores of the
borrowing party, and base the amount to be lent on the credit score. This can
go so far as a bank fully denying someone a mortgage based on their credit
score. This situation can create an interesting dilemma; someone cannot get a
mortgage due to poor credit, but cannot repair their credit score because no
business will lend them money.
Private mortgages however rarely have lenders that focus on poor credit or
other outside factors when determining a mortgage amount. These lenders are
willing to overlook these potential problems, and allow people to have a
mortgage that doesn’t dwell on past issues. However, these mortgages typically
come with a higher interest rate.
Mortgage interest rates vary slightly between banking institutions, but
tend to sit in or around the same number. The type of mortgage can also change
the interest rate, be it fixed, variable, or a mix of both. These interest
rates fluctuate depending on the state of the financial market and the
foreseeable future of the market. Like all things connected to a bank, these
mortgages are more difficult to get, and will likely have a long payback
Private mortgage companies take a risk when lending out large sums of money
with a general disregard for credit score. They understand that they face an
uncertain path, and factor that into their loan interest rates. What if the
borrower with bad credit continues to go down the same path and ends up unable
to pay back their loan? This is why their interest rates are typically higher.
Risk of Closure
As a rule, banks very rarely go out of business. Taking out a 20-year mortgage
with a traditional bank is not necessarily a risk at all, as borrowers know
that in 20 years the bank will still exist.
This cannot always be said for private mortgage lenders. Lending companies can
seemingly appear out of nowhere, and close just as fast. If a private mortgage
company goes out of business, the mortgage does not simply just disappear, it
gets sold to another company. Borrowers then risk dealing with more than one
lending company at a time, all with different rules and practices for their
private mortgages. This means that borrowers need to research the company they
are making a deal with before they make a 10-year deal with a brand new or
When deciding on a mortgage company, it is important to decide whether the loan
will be connected to a bank or private lender. Private mortgages on Oakville
homes can be a great choice, so long as the differences between them and bank
mortgages are well known.