First, the amount of financing, on average, is not very high, typically under $100,000.
Second, a mortgage registration in second position can provide a healthy rate of return for a private lender or private mortgage investment group.
Third, the stability of a lower cost first mortgage provides a private lender with greater comfort that there is a certain amount of financial stability in place.
Fourth, the private lender can dictate the amount of financing they are prepared to provide based on the amount of equity remaining after the first mortgage, creating as much security buffer as they deem necessary to advance funds. This can also result in more take it or leave it rates or terms, depending on the level of financial stress of the borrower, providing the private lender with a great deal of flexibility to choose which deal they decide to fund and at what rates and terms.
Fifth, individuals that require private second mortgages in Toronto tend to be in a position where money is required right away and are ready to enter into a private second mortgage commitment. With conventional mortgage financing, there tends to be considerable time wasted with applicants either changing their minds or just doing research as they go through the process of potentially securing a mortgage.
A Toronto private second is a pure home equity loan which means that the funds secured from the equity remaining in the home, in most cases, come with no strings attached as to how the funds are to be used. The spectrum of applications of funds is limitless, but the most common applications are as follows:
Debt Consolidation Loan. Individuals with a build up of costly short term credit may not be able to refinance their debt through an institutional lender due to the stress placed on their credit profile from the debt being held. In many cases, the applicant may also not want to refinance their first mortgage due to the prepayment penalties that could get triggered, but their weak or poor credit standing may not allow them to secure a bank second mortgage either. This is where a private second mortgage can be the best solution. Even though the interest rate is going to be higher than a conventional first or second mortgage, compared to high interest rate credit cards and high monthly cash payment demands, the benefits of a private 2nd mortgage can be significant.
Renovation and Construction Loans . In many cases, a construction loan or construction mortgage is secured by a private 2nd mortgage against the property on which the construction work will be taking place. In fact, most construction loans on single family builds, or small commercial construction projects, are funded with private second mortgages due to the simplicity in the applicant and draw processes and the lack of a requirement to have the take out mortgage pre approved before construction begins.
Private mortgage lenders that provide private seconds tend to finance deals within the immediate geography in which they reside due to their intimate knowledge of the local market area which in turn allows them to make accurate lending decisions in a short period of time. While the majority of private lending sources are still individuals, there are growing numbers of private that work together in small investment groups, syndicates, and mortgage investment funds.
With all the potential choices that can be available for a Toronto private second mortgage requirement, the best way to get financing in place that fits your needs and time lines is to work with an experienced mortgage brokerage that has direct access to private lending sources in your area.
If you have a residential property financing requirement, we suggest that you give us a call and set up a time to speak with a member of our team. We’ll go over your situation with you and provide mortgage financing options for your immediate consideration.