Common Private Mortgage Lending Myths in Canada: A Guide
Common Private Mortgage Lending Myths in Canada: A Guide
In this article, we'll take a closer look at some of the more common private mortgage lending myths, and separate fact from fiction.
As with any industry, several myths persist when it comes to private mortgage lending. Some of these myths can be harmless, but others can be downright dangerous, leading borrowers to make poor financial decisions or miss out on potentially beneficial opportunities. In this article, we'll take a closer look at some of the more common private mortgage lending myths, and separate fact from fiction.
Whether you're a borrower or a lender, understanding the truth behind these myths can help you make more informed decisions and navigate the world of private mortgage lending with confidence.
Myth #1 – Private Lenders Will Lend On Anything
Fact: Private lenders have their own lending criteria and standards, just like traditional banks and lenders. They assess the borrower's creditworthiness, income, and property value before deciding to lend money. Private lenders may be more flexible with their lending criteria, but they do not lend on anything and everything. They also have limits on the amount they can lend and the loan-to-value ratio they are willing to offer.
Myth #2 – Private Lenders Charge Exorbitant Interest Rates
Fact: Private lenders charge higher interest rates than traditional lenders, but that is because they are taking on more risk. Private lending is typically used for short-term loans, and the interest rates are often reflective of the risk involved in the loan. However, private lenders are not in the business of charging exorbitant interest rates (usually only 3-5% more than banks). They want to make a fair return on their investment, and they understand that borrowers will not be able to repay the loan if the interest rate is too high.
Myth #3 – Private Lenders are Only for Those with Bad Credit
Fact: Private lenders are not just for those with bad credit. While they may be more willing to work with borrowers with less-than-perfect credit, private lenders also work with borrowers who have good credit but need financing quickly. Private lenders are often used for bridge loans, construction loans, or short-term financing needs where traditional lenders cannot provide the funding in time.
Myth #4 – Private Lenders Are Not Regulated
Fact: Private lenders are regulated, just like traditional lenders. They must comply with state and federal laws regarding lending, and they must follow guidelines set by regulatory bodies such as the Financial Consumer Agency of Canada. Private lenders must also disclose all fees and charges associated with the loan and provide clear terms and conditions.
Myth #5 – Private Lenders are Only for Real Estate Investors
Fact: Private lenders are not just for real estate investors. While they are often used by investors to finance their projects, private lenders also work with individual borrowers who need financing for their primary residence or vacation home. Private lending can be a good option for borrowers who do not meet the strict criteria of traditional lenders, or who need funding quickly.
Myth #6 – Private Lenders Are Harder To Deal With On Defaults
Fact: While it is true that private lenders may have different processes and procedures for handling defaults compared to traditional lenders, they are still bound by state and federal laws that protect borrowers. Private lenders cannot engage in illegal or unethical practices, such as harassing borrowers or seizing property without proper legal action. Additionally, many private lenders prefer to work with borrowers to find a solution before resorting to foreclosure or other legal actions. Borrowers need to communicate openly and honestly with their lenders if they are experiencing financial difficulties.
THE BOTTOM LINE
Several common private mortgage lending myths in Canada can often mislead borrowers. However, these assumptions are not necessarily true and can prevent borrowers from accessing viable lending options. Borrowers need to understand that private mortgage lending can be a valuable alternative to traditional lending sources, especially for those with unique financial situations. By dispelling these myths and educating oneself on the benefits and risks of private lending, borrowers can make informed decisions and secure the financing they need.
If you are looking for alternative lending options, contact Level Up Mortgages. It is our aim to simplify the Mortgage journey for new buyers, newcomers and the self-employed.
Level Up Mortgages is a mortgage broker team focused on helping the self employed, new immigrants, non-residents, and investors, access best rate and alternative lending in Canada. We have been nominated for best up and coming broker in Canada in 2021 and have been on CTV News and various publications because of our education-first approach to helping you always stay a step ahead of the process. Reach out to us for access to our first-time buyer course or a mortgage strategy session.
See What You Qualify For Or Contact Paul To Get Your Pre-Approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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