Private mortgages come in many forms, first and the most obvious would be that an individual lends his or her own money to another individual for the purpose of buying a property. The money is then secured by registering that mortgage against the property and the buyer then pays the individual interest on the money. Quite common in Canada for this to happen and then the individual who lent the money would report it as income to Revenue Canada. Sounds pretty straight forward and it is, as long it is one individual lending to another individual it is outside of the different acts that govern different transactions.
There are also a variety of different lenders who are still considered private mortgages but it is governed by the securities commission and they are called syndicated mortgages. In this scenario two or more investors pool their money for the purpose of funding one mortgage, they fall under the securities commission because the lenders need to be considered sophisticated investors. Being a sophisticated investor means they have the knowledge to understand the risk involved in lending their money this way and that they have meet the requirements of the securities commissions.
Another form of private mortgage can be gotten through companies that are considered to be Mortgage Investment Corporations or MIC’s. These companies have multiple investors who pool their resources for the purpose of lending to individuals for first and second mortgages as well as construction and commercial mortgages.
You can expect on a private mortgage to pay higher rates and that you will pay fees to the broker as well as the lender. Private mortgages always require an appraisal to help determine the value of the property and most private lenders will only go up to 75% of the appraised value of a property. Private mortgages do this because they will take on higher risk individuals and should there be a default they will have room to foreclose on the property and meet their costs.
The Brokers for Life team is very experienced with private mortgages and we have people who invest their money with us to be lent out as mortgages.
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