Alternative & Private Mortgages in Ontario
Not every borrower fits the lending requirements of a traditional bank or credit union. Alternative and private mortgage solutions may provide financing options for borrowers whose circumstances make traditional financing difficult.
I’m Wilson D’Souza, Mortgage Agent Level 2 with Mortgage Architects. I help clients understand their mortgage options and explore financing solutions based on their circumstances, goals and current lending guidelines.
Alternative and private mortgages can be useful in certain situations, but they can also involve higher interest rates, fees, shorter terms or other conditions. It is important to understand the costs and have a realistic plan for what happens when the mortgage term ends.
What is an alternative mortgage?
An alternative mortgage is a mortgage solution offered outside the traditional lending criteria used by many banks and credit unions.
Alternative lenders may consider factors that are assessed differently by traditional lenders, depending on the borrower’s circumstances.
Alternative financing can sometimes provide a bridge between traditional mortgage financing and more specialized solutions.
What is a private mortgage?
A private mortgage is financing provided by a private lender rather than a traditional bank or credit union.
Private lenders can include individuals, private companies, mortgage investment corporations and other private lending entities.
The terms of a private mortgage can vary significantly, including the interest rate, term, fees, repayment structure and other conditions.
When might someone consider an alternative or private mortgage?
There are different circumstances where borrowers may explore alternative or private financing, including:
• Difficulty qualifying with a traditional lender
• Self employed income that is difficult to document using traditional methods
• Credit challenges
• Recent financial changes
• Debt or cash flow challenges
• A property that does not fit traditional lending criteria
• Short term financing needs
• The need for a financing solution while working toward traditional mortgage qualification
The suitability of any mortgage depends on the borrower’s individual circumstances.
Can I get a mortgage if my bank says no?
Possibly.
A decline from one lender does not necessarily mean that mortgage financing is unavailable.
Different lenders have different lending criteria, and alternative or private lenders may assess certain applications differently.
The important question is not simply whether financing is available. It is whether the mortgage is suitable for your situation and whether the costs and terms make sense.
Are alternative and private mortgages more expensive?
They can be.
Alternative and private mortgages may have higher interest rates, lender fees, shorter terms or interest only payment structures compared with traditional mortgages.
That is why it is important to understand the total cost of the mortgage rather than looking only at the monthly payment.
How long do alternative or private mortgages usually last?
Many alternative and private mortgages are designed as shorter term solutions.
The exact term depends on the lender and the mortgage structure.
Before entering into a short term mortgage, it is important to understand what you plan to do when the term ends.
What is an exit strategy?
An exit strategy is a realistic plan for how you intend to move from your alternative or private mortgage to a more affordable financing solution when the current term ends.
For example, your plan might involve improving your credit, increasing or documenting income, reducing debt, building additional equity or selling the property.
The strategy should be realistic based on your actual circumstances. FSRA specifically emphasizes the importance of a viable exit strategy for private mortgage suitability.
Can I refinance a private mortgage when the term ends?
Possibly, but it should not be assumed.
Your ability to refinance will depend on your financial circumstances at that time, including income, credit, debt, property value, available equity and the lending guidelines of the new lender.
This is why it is important to consider your exit strategy before entering the private mortgage.
What should I ask before accepting a private mortgage?
Before signing a private mortgage, consider asking:
• What is the interest rate?
• What fees and other costs will I pay?
• How long is the mortgage term?
• Is the mortgage interest only?
• How much will I owe when the term ends?
• What happens if I miss a payment?
• What are the renewal terms?
• What is my exit strategy?
• What happens if I cannot refinance at the end of the term?
• Are there any additional conditions or restrictions?
FSRA recommends that borrowers understand the mortgage terms, costs, risks and obligations before signing.
Should I use a private mortgage as a long term solution?
Private mortgages are generally intended to be shorter term financing solutions rather than a permanent replacement for traditional mortgage financing.
If you are considering a private mortgage, it is important to understand how and when you expect to transition to a different financing solution.
Why work with a Level 2 Mortgage Agent?
In Ontario, Level 2 mortgage agents can arrange mortgages with traditional, alternative and private lenders.
As a Mortgage Agent Level 2 with Mortgage Architects, I can help you review different financing options and understand the terms, costs and requirements before you make a decision.
How can I find the right alternative or private mortgage solution?
Every situation is different.
I can help you review your financial circumstances, understand the available options and compare the potential costs and benefits of alternative or private financing.
My goal is not simply to find financing. It is to help you understand the solution and whether it fits your situation and longer term goals.
Let’s review your options
If your bank has declined your mortgage application, or you are considering alternative or private financing, let’s have a conversation about your situation.
Book a Strategy Call with Wilson D’Souza, Mortgage Agent Level 2 with Mortgage Architects.
