|Private Lenders||Big Banks|
|Loan Processing Fees||2%-4%||0.5%-1%|
|Approval Time||24 to 72 hours||11 to 25 days|
|Minimum Credit Score||None||600|
|Typical Term Length||2 Years||5 Years|
Private mortgage lenders in Alberta offer various services to help you get the money you need to buy a home. They can provide you with a loan, even if you don't have a good credit score, and they can help you find the best types of mortgage options for your situation. They can also help you find the right property to invest in, and they offer a variety of other services to help you get started in the world of real estate.
If you're thinking about buying a home, it's essential to research Alberta's different private mortgage lenders. It's necessary to understand how they work and when to best use one. Otherwise, you could spiral into debt by paying a high-interest loan. Continue reading to learn everything about private mortgage lenders in Alberta.
When you buy a home, you will need to get a mortgage from a lender in Canada. However, the big banks in Canada are very selective with who they lend to. You need to have a good credit score and income stability. However, this leaves challenges to self-employed individuals or those without a reputable credit history. Additionally, you must meet a mortgage stress test to get a mortgage from a bank. Private mortgage lenders don't have this criteria, so they are more flexible with qualifying you. If you can't get a loan from a bank, then a Canadian credit union or private mortgage lender are alternatives.
A private mortgage is a loan that you get from a private lender instead of a bank. Private lenders can be individuals or companies, and they offer different interest rates and terms than banks. It's important to remember that private mortgages are not always the best option. They can be expensive, and they often come with more risks than traditional mortgages. Make sure you understand all the terms before you sign anything, and talk to a real estate lawyer if you're not sure what's best for you.
Some lenders are better than others, and some can offer you better rates and terms. It's also important to make sure that the lender you choose is licensed and insured. Our research on private mortgage lenders vs. banks has revealed that private lender interest rates are 1% -14% higher than average bank lending rates. Additionally, they may require a higher down payment than banks. For example, a bank might be willing to lend you 80% of the property value (loan to value) whereas a private lender will only lend you 60%.
There is also a mortgage origination fee which is the processing cost your lender charges you. While banks may charge you 0.5%-1% of the total amount, a private mortgage lender may charge 2%-4%. We will use these costs to compare a $100,000 loan over a five-year term between a bank and mortgage lender.
|Private Lenders||Big Banks|
There are several situations when it might make sense to use a private mortgage lender:
Private mortgage lenders in Alberta offer various services to help you get the money you need to buy a home. They have more flexibility than banks and can customize loans for you. They can provide you with many different financial products depending on your needs. Below are some of the most common services offered by private mortgage lenders.
This is the service most people think of when talking about private mortgage lenders. Bad credit mortgages are the standard higher-interest rate mortgages for those who can't receive lending elsewhere. These loans should only be used for a short period. For example, if you expect your financial situation to improve significantly, you can switch to an A-Level lender.
A second mortgage is a loan taken out against your home's equity. This means that you're borrowing additional against the money you've already paid on your house. A second mortgage is usually taken out when you need more money than what a bank will lend you. A second mortgage is also an option if you don’t want to change your original mortgage. For example, a cash out refinance has higher initial fees than a second mortgage.
A third mortgage is similar to a second mortgage, but is an additional mortgage on top of a second mortgage. They are the last creditor to get paid if you default on your mortgage so typically have the highest interest rate.
Debt consolidation mortgages allow you to combine all your debts into one mortgage. This can be helpful if you're struggling to make multiple payments each month. It can also be beneficial if you have a high-interest rate on your debts, such as credit cards.
When you consolidate your debts, you'll usually get a lower interest rate, and you may be able to extend the term of your mortgage. This means that you'll have a more extended period to pay off your debt, which can make it more manageable.
Banks are usually unwilling to finance land acquisitions or development loans. This is because the risk is too high for them. On the other hand, private mortgage lenders are more willing to take on this risk. They can do this because they have a higher interest rate and are not as tightly regulated as banks. This is a good option for developing a property. Eventually, you can receive a mortgage from the bank when the rental property income has been stabilized.
Construction loans are similar to land acquisition & development loans, but they're for projects currently under construction. Construction loans usually have a higher interest rate than regular mortgages, but they're a good option if you need to finance a construction project.
Bridge loans are short-term loans used to cover the gap between the purchase of a new property and the sale of your old property. Bridge loans are usually for a period of 6 to 12 months.
If you have multiple rental properties, it can be hard to receive financing for additional buildings. Usually, this happens when you own 8-10 homes. In this case, you can use a rental property mortgage to finance the initial purchase and then refinance to a standard mortgage later.
Before you decide to work with an Alberta private mortgage lender, it's important to ask them some questions. This will help you determine if they're the right lender for you. Below are some questions you should ask:
While private mortgage lenders aren't regulated by the Real Estate Council of Alberta (RECA), your mortgage manager must be. The manager is responsible for collecting payments, distributing the funds, and more. You will want to make sure they have a RECA license. To confirm this, you can use their license search tool.
On top of interest rates, private mortgage lenders charge a fee for their service. This typically ranges from 2%-4% of the loan value and must be paid upfront. Typically this is removed from the amount you receive. For example, imagine you receive a $100,000 loan with a 2% service fee. This is deducted from the loan, so you would only receive $98,000. Yet you still must pay interest on the total of $100,000.
The annual percentage rate, otherwise known as APR, shows the actual cost of borrowing. It takes into account legal, initiation, appraisal fees and more. Some lenders may provide a low-interest rate to lure you in only to have high hidden fees. Understanding the APR will show you the actual cost of borrowing.
Private mortgage lenders often have prepayment penalties. You must pay this fee if you decide to pay off your mortgage before the end of the term. This can be costly, so make sure you ask about it before signing anything.
Only some private mortgage lenders do offer a grace period. This is a period after you're late on a payment where you won't be penalized. Make sure you find out how long the grace period is and the penalties if you're late after that. The penalties could be high so avoid late payments if possible.