They say the devil is in the details! Well I don’t want that character anywhere in the mortgage loans that I arrange. This is not the case with a surprising amount of the private lending contracts I have given a second opinion on. Unscrupulous lenders and greedy middlemen add verbiage that should make a forked tail grow from their backside. Here are the most common pitfalls out there and how to avoid them.
The Case For A Private Mortgage In Barrie
First of all let’s understand that just because you are borrowing a private mortgage loan that this automatically constitutes working with loan sharks or other unsavoury types. It is well documented that in any nation that has more financial options in the area of borrowing that there is a direct correlation to the citizen’s overall wealth. More categories of loans from banks, trust companies, credit unions, home equity lenders and private capital all play a role in providing a tailored option to your specific needs. Where things go wrong is when you are unaware that you are agreeing to a loan that isn’t the best you can achieve. I always tell those who work with me as their mortgage broker in Barrie Ontario – that private mortgages are just a tool in your toolbox and it has a job that was created just for it. Staving off financial disaster!
Fine Print Pitfalls – It’s Found In The Details
In working with hundreds of lenders on many hundreds of private mortgage contracts – I have found some very consistent pitfalls that are relatively simple to avoid as a borrower with a bit of foreknowledge.
1) High Lender Fees – just like CMHC charges an insurance premium on high ratio loans where you are placing less than 20% down payment so do lenders often charge a fee for the risk associated with providing a 2nd mortgage loan. Where this becomes less straightforward is when the loan becomes burdensome based on the fee. I have seen lender fees as high as 10% of the total loan amount. Most of the lenders that I choose to work with maintain similar fees to CMHC’s guidelines in a range of 1 – 3%.
2) Default Proceedings Penalty – another area where I am quite concerned is the language surrounding what happens with the mortgage in the event of a default. This can be as simple as being late on a payment to as complicated as legal action to force the sale of the home. Where the concern lies is in the penalty on the occasion of default. I have seen lender’s charge up to 25% of the loan’s principle amount as a penalty. On a 100K that is a twenty five thousand dollar penalty to the borrower! Outrageous indeed. I work hard to institute a standard charge schedule with all my lenders to protect the borrower for all potential events that are possible.
3) Mortgage Renewal Bonus – and here is the icing on the cake. In perusing contracts that are used by many lending parties, the paragraph that causes my gut to turn is the lender’s mortgage renewal bonus. This is where the lender gets another fee – effectively getting another hunk of your cash for the privilege of you borrowing the same money for an additional year or two. Now don’t get me wrong – it is pretty standard procedure for their being a cost involved with renewing any mortgage contract at maturity. Where things go off the rails is when a 6K renewal fee is instituted for the very clear reason (at least to me) of trying to get the client to default. It is clear in these cases that the lender’s intent is to cause the borrower to stumble and a hostile takeover ensues.
Avoid Making A Deal With The Devil
Now we come to the crux of the matter and not an area to overlook lightly. At the end of the day it is not the loan you take to solve your financial problem but the parties you are doing business with which is most important. This is especially critical if you are not a financially savvy individual. If you choose to work with those who are willing to source your loan with unsavoury individuals – then I can guarantee you that at some point in the loan cycle there will be a point where you will be surprised and disgusted with the implications of the fine print of what you signed.
A private mortgage loan can be a very useful tool in turning around a bad situation quickly. With this being said – it is so very important that this is incorporated with your overall Mortgage Plan. A band-aid on a dirty wound is going to get infected all over again. It is my prerogative to ensure that the fine print of any mortgage contract works in your favour to the greatest extent possible. Take a moment and contact me below and we can look at all the details of your situation to determine the best loan for you in Barrie.