Everything You Need to Know About Private Mortgage Lending

Unlock the world of private mortgage lending with Sondhi Defence. We can guide you through the legal matters related to private mortgage lending. Give us a call today.

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Understanding Private Mortgage Lending

Do you intend to acquire a legit mortgage outside Canadian banks? Private lenders can assist you in financing your property. In the recent couple of years, private lending has grown immensely, in part due to high rejection rates by traditional lenders, including financial institutions and credit unions.

If you are planning on applying for a private mortgage, consider consulting a lawyer with experience in real estate law to ensure the private mortgage is safe and in your best interest. Our team of real estate lawyers at Sondhi Defence can help you make informed decisions when signing private lending lease agreements.

Read the article as we explain how private mortgages work in Canada and how our lawyers can help you.

What Is Private Mortgage Lending?

A private lender mortgage is a loan obtained by a private entity rather than borrowing from a bank or a credit union. It can be offered by individuals or private companies to help borrowers purchase or refinance a property.

Private mortgages are an alternative option to traditional bank mortgages, offering more flexibility and leniency. However, these loans usually come with higher interest rates compared to traditional bank loans.

The Role of Private Lenders

Private lenders are companies or individuals offering short-term secured loans for property purchases. These short-term asset-backed loans run between one and three years. Borrowers seek private mortgage lending when traditional mortgage lending is unavailable due to:

  • Poor credit score history
  • Unconventional income sources
  • Flexible lending criteria

Most private mortgage lenders are more willing to take on higher-risk borrowers because of the less stringent regulations they must comply with compared to A and B lenders.

Private Mortgage Laws

Terms and conditions of private mortgage loans vary and can be negotiated. However, private mortgage lending is regulated by provincial and federal laws. Government bodies and laws governing private mortgages include:

  • Provincial mortgage broker laws: Every province has its own legislation governing mortgage brokers and lenders. In Ontario, the governing law is the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA). MBLAA outlines licensing and registration requirements for lenders and brokers in the province.
  • Federal anti-money laundering and anti-terrorism financial regulations: Private mortgage lenders are subject to federal regulations to prevent money laundering. Lenders need to implement due diligence to identify borrowers. They also need to ensure the borrowers don’t use the funds illegally.
  • Foreclosure laws: A private mortgage lender can foreclose a property if the borrower defaults. The foreclosure process in Ontario is governed by the Mortgage Act of 1990.
  • Consumer protection laws: Consumer protection laws protect borrowers from unfair practices like predatory lending. Private lenders are required to provide clear information about the loan terms.

A borrower needs to carefully consider loan terms, including:

  • Interest rates
  • Repayment terms
  • Fees and penalties associated with the mortgage

It’s essential to seek legal and financial advice before signing a private mortgage loan. Real estate lawyers can help you review the mortgage terms and comply with relevant regulations.

Advantages of Private Mortgage Lending

Borrowers can enjoy numerous merits associated with private mortgage lending in Canada. They include:

  • Flexibility: Payment schedules, eligibility criteria, and loan terms are generally more lenient and flexible compared to traditional mortgage lenders. Borrowers also don’t need to pass the stress test.

  • Faster processing: Most private lenders have a faster approval process compared to traditional banks, so borrowers can access the funds more quickly.

  • Accessibility to financing: Private mortgage lending is an alternative financing source if you cannot access traditional bank loans due to eligibility criteria.

Potential Risks and How to Mitigate Them

Some of the common risks associated with private mortgages include:

  • Higher private mortgage interest rates increase the cost of borrowing

  • Shorter loan terms result in increased financial pressure to repay the loan

  • Limited protection in case of fraud

  • Higher risk of foreclosure in case of default

Borrowers can mitigate the mentioned risks by:

  • Conducting thorough research on potential lenders to ensure trustworthy

  • Negotiating loan terms to ensure reasonableness and align with your financial goals

  • Budgeting carefully and planning for mortgage payments

  • Seeking legal advice from a real estate lawyer

Contract terms need to be reviewed carefully to comprehend the risks involved before signing a contract. Thus, having a real estate lawyer can help.

The Process of Obtaining a Private Mortgage

The process of getting a private mortgage varies depending on the lender. However, here is a general step-by-step overview of the process:

Determine your financial needs: Borrowers need to assess their financial situation and determine the funds they need. So, consider the property’s purchase price, down payment amount, and additional fees.

Research private lenders: Identify private lenders who practice and have experience in the mortgage financing you need. Find reputable private lenders through online directories, mortgage brokers, or referrals.

Submit an application: Contact a private lender and submit a mortgage loan application. Provide the following details:

  • Personal details
  • Income and employment information
  • Credit history
  • Details and documentation related to the property

Provide documentation: Private lenders may request documentation to support your application. Key documents include:

  • Bank statements
  • Tax returns
  • Pay stubs
  • Proof of down payment
  • Property appraisals

Review and negotiate loan terms: The lender reviews your application and offers you a loan. Review the loan terms and conditions and negotiate to ensure they align with your needs.

Obtain legal and financial advice: It’s imperative to seek legal and financial advice before signing a loan agreement. Your lawyer reviews the loan documents to protect your rights and interests. Private lending lawyers understand potential risks and will work to help you avoid them.

Complete the loan process: The lender finalizes the mortgage agreement upon agreeing to the terms. You need to sign the mortgage agreement and any other relevant documents and pay applicable fees.

Fund disbursement: The lender disburses the funds to purchase a property or refinance an existing mortgage.

Get Trusted Advice and Assistance From Sondhi Defence

Getting a private mortgage is sometimes the only option for you to become a homeowner. However, it comes with a set of risks that must be well-understood in advance. Thus, there is a need to seek legal guidance from experienced private lending lawyers. Sondhi Defence has considerable experience working on various real estate transactions for borrowers.

Our real estate lawyers are poised to assist clients with their real estate transactions and financing. We can ensure your rights and interests are protected throughout the process. Contact us to schedule a free consultation with experienced and diligent private mortgage lending lawyers.

Get In Touch

If you or someone you know has been charged with a criminal offence, call us right away at 1 (855) 4-SONDHI and get our team on your side. 

Andrew George Cowan
Andrew George Cowan
2023-10-28
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2023-10-06
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Lisa Williams
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2023-09-29
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