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Why do Borrowers Want Private Mortgages?

28 March 2013

Often we get so caught up in talking about the maximum returns you can get through private mortgage lending, and the ease and security of this type of investment, that we get forget to touch on one very important factor – why people want private mortgages in the first place. This is extremely relevant to investors, because it spells bad news anytime people don’t want the product you’re investing in. So, why do borrowers turn to private mortgages in favour of banks and big lenders?

Borrower not eligible for mortgage or second mortgage at traditional lender
This is typically the main reason why borrowers turn towards private mortgages. Sometimes, everyone in the room knows that the deal the borrower is after makes good sense and is of little risk, but because of the strict guidelines and regulations the banks are under, they aren’t able to make the deal. However, private investors funding private mortgages can still complete these deals, without any risk, because equity is placed upfront as collateral, providing a protective cushion for investors.

Property not eligible for mortgage at traditional lender
It’s not just the borrower that has to qualify for a mortgage, it’s the property too! Unless located in a major urban center, mortgages are nearly impossible to get on commercial and income properties. When borrowers and other investors have nowhere else to go, they often start looking for private mortgages.

Borrowers need a speedy closing
Closing out a mortgage deal with a major bank or other big lender can take anywhere up to one month. When borrowers choose to go with a private mortgage however, that time can be whittled down to as little as 4 to 10 business days. That’s another big reason why borrowers choose private mortgages.

Borrower not eligible for bank refinancing
The stricter mortgage rules put into place last July have made it almost as difficult to get home refinancing than it has to get an original mortgage. Because of that, many homeowners often turn to private mortgage lenders for their refinancing needs.

Borrower not eligible for second mortgage for debt consolidation
Sometimes,  no matter how good a borrower’s credit history is, or how much equity in their home, banks just won’t give them a second mortgage if they have debt – even if that mortgage is to pay off said debt. A case of the deal making sense but still not going through, this is another situation when borrowers will quickly turn to private mortgages.

As a private mortgage investor, you need to know that your own deal makes sense, and that there are people out there that want the product you’re investing in, and that are willing to pay large amounts of interest to get it. This is never truer than with private mortgage investing, which is why it truly is one of the most stable and secure types of investment you could choose.

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