Real estate has long been a cornerstone of wealth creation, and while traditional lending institutions have played a major role in financing property ventures, an alternative avenue has an equally important role in the industry. Private mortgages play a prominent role in both the real estate acquisition and development space, gaining significant traction over the last several years. The most recent statistics on private lending from Stats Canada indicate there has been roughly 17.5% growth in the total value of non-bank mortgages in just 3 years from Q2 2020 to Q2 2023. The reason for such significant growth in the sector is soaring interest rates, which has made the difference in the cost of borrowing private money versus institutional money far less substantial.
Understanding Private Mortgage Lending
In essence, private mortgage lending involves individuals or private entities lending money directly to borrowers for real estate transactions, bypassing traditional financial institutions like banks or credit unions. This alternative form of financing provides a flexible and often more personalized approach to securing funds for property purchases. Unlike traditional mortgages issued by banks, private mortgage lending involves individual investors or private entities acting as lenders. This establishes a more direct and potentially relationship-driven lending process. Like traditional mortgages, private mortgages are secured by real estate. The property being financed serves as collateral, mitigating risk for the lender in the event of borrower default. A charge is still registered on the property and can come in various positions such as first, second, third, etc. The corresponding rate of a mortgage depends on the market but ensures a fair return is being delivered to lenders and correspondingly a manageable amount is being paid by the borrower.
Private mortgage lending often offers more flexibility in terms of loan structures and repayment terms. This adaptability allows for customized agreements that suit the needs of both the borrower and the lender. Private mortgage loans can be processed more quickly than traditional loans. The absence of extensive bureaucratic procedures and stringent regulatory requirements enables a faster turnaround, making private lending an attractive option for time-sensitive transactions. Private mortgage lending also involves a degree of risk, given the nature of real estate investments. However, this risk is often balanced by the potential for higher returns, making it an appealing option for investors seeking opportunities beyond conventional financial instruments.
When to Consider Private Mortgage Lending
Borrowers with less-than-ideal credit scenarios may find it challenging to secure loans from traditional lenders. Private mortgage lending provides an alternative for individuals facing credit hurdles if they can show a clear path to refinancing, an ability to execute a project, and a strong enough income or cash flow to meet interest payments.
Traditional lenders may also hesitate to finance unconventional or unique properties. Private mortgage lenders, however, may be more willing to consider a broader range of property types. Additionally in situations where time is of the essence, such as real estate auctions or time-sensitive purchases, the speed of private mortgage lending can be a significant advantage. Borrowers seeking more personalized and flexible loan terms, which may not be readily available through traditional lenders, can benefit from the tailored solutions offered by private mortgage lending.
Private Lending and Borrowing with Pro Fund Mortgages
Private mortgage lending represents a dynamic and evolving aspect of real estate financing. With its personalized approach, flexibility in loan terms, and potential for attractive returns, it serves as a compelling option for both borrowers and investors looking to navigate the diverse landscape of real estate. As with any financial decision, careful consideration and due diligence are essential to ensure that private mortgage lending aligns with the specific needs and goals of all parties involved. Pro Funds Mortgages has long specialized in private mortgage lending with a private lender list of more than 10,000 individuals and corporations. If you are interested in the prospect of privately lending funds or obtaining a private mortgage for your next real estate endeavour, do not hesitate to contact the Pro Funds team.
