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When does a private 2nd mortgage make sense?

When does a private 2nd mortgage make sense?


In many circles a “private mortgage” is a bad word, it’s only needed by people who are in financial trouble & might lose their house?  Right?  While this sometimes is the case, for others a private mortgage is a way to save money.

If your house is in dire need for some renovations (or any other family emergency), refinancing your first mortgage may not be the most financially prudent move before it reaches its maturity date.  Lender penalties to break a mortgage early can be very expensive, I’ve seen penalties in the $20,000 – $30,000 range over the past few years.  In this case a private mortgage can be a good option.  The costs associated with this type of mortgage normally are; legal fees $1,200 – $1,500, lender fee of 1% to 2% and a broker fee of 1% to 2% of the principle amount.  The interest rate on this type of loan is usually between 8% & 15%.  While this might seem expensive compared to your first mortgage rate, it could still potentially save you thousands.

A private mortgage can be an excellent short-term option, allowing a home owner to consolidate the 2nd mortgage into their 1st when the maturity date is reached.  No penalty payout…

Due to the new Canadian institutional mortgage rules concerning refinancing (as of July 2012), home owners are finding it harder to secure lending solutions through their bank.  Being a professional mortgage broker in Barrie, I work with a number of private investors who lend in the Barrie & surrounding area who are able & willing to lend outside of these guidelines, opening up additional funding options.

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