Published on July 18th, 2019
Loans can be different according to its use, like mortgage loans that are exclusively created for home buyers. The loan is no different from any other secured loan but only used for buying real estate.
The lenders lend the money against the property that becomes the security for the loan and is beneficial for borrowers too who does not have to provide any other security or collateral to acquire the loan.
Normally banks and housing finance companies provide mortgage loans, but a prêt privé Rapide et sécuritaire for buying homes is also now available.
Private lenders are ready to finance condominiums and single-family homes as well as income properties and cottages.
You can avail up to 80% of the fair market value of the property as a loan depending on the type of property and location. The loan amount varies between $20,000 and $2,000,000.
1. Why Choose A Private Mortgage Loan
Those purchasing some unconventional property prefer private mortgage loan that a bank or prime lender is not ready to finance.
People with bad credit history and those who want quick loans with a speedy approval process can go for private mortgage loans. Sometimes people have undisclosed incomes that prevent them from availing traditional mortgage loans can avail private mortgage loans.
2. Private Mortgage Agreement Features
Proper documentation of private mortgage loans is very important in the interest of the borrower and lender. The expectations of both parties should reflect in the agreement. For borrowers, proper documentation helps in availing tax benefits on the interest paid and for compliance with other legal issues.
The agreement should clearly state about some of the most important points like the payment dates and mode of payment, what happens for delayed or non-payment, whether the loan is secured or not, provisions for p-payment and its conditions (if any) and if PMI or private mortgage insurance is required.
If PMI is applicable, then the lender must clearly state when the borrower should stop paying PMI as it is the norm to stop PMI when the LTV or Loan to value reaches 78%.
In the case of Lender Paid Mortgage Insurance or LPMI is applicable, then the agreement must include the specific terms of the higher interest rate. Some private lenders may have some other disclosure forms that are part of the agreement.
3. Types Of Mortgage Loans
Mortgages come in many forms like a fixed-rate mortgage or traditional mortgage, adjustable-rate mortgage, an interest-only mortgage.
1. Fixed-Rate Mortgage
As the name indicates, the borrower repays affixed interest rate throughout the tenure of the loan. The monthly principal and interest payment stay the same from the first to the last payment.
Such loans come in 15-30 years terms. Changes in the market interest rate do not impact the loan payment.
2. An Adjustable-Rate Mortgage (ARM)
Unlike traditional mortgage loan, the interest rate of Arm varies according to the market conditions. It may start with below-market-rate interest but could go much above it in the long run.
Using a mortgage calculator helps to get an idea about the monthly payments that help to choose a loan product.