Private Mortgages in Oakville vs. Bank Mortgages: What Are the Differences?

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.

Interest Rates

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 period.
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 unstable company.
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.


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