Many people call us asking about private mortgage interest rates. And each time we tell them the same thing. We tell them it’s an important question. But there’s another important question they should be asking.
A bit of background first about private mortgage interest rates.
These interest rates are always higher than bank rates. They are usually higher than rates from B-lenders. Why is this? It’s because the private mortgage lender is taking on more risk.
If there is such a thing as a perfect borrower, then that person goes to a big bank for a mortgage. The perfect borrower is someone with great credit. The perfect borrower also has a stable, regular job.
Moreover, ideally the job is unionized or at least involves a long-term contract. In other words, the borrower has regular, consistent income.
This is the kind of borrower that can put 5% down as a down-payment to buy a house. This is the kind of borrower who might get a mortgage of 2.99% or better.
Private mortgage interest rates are satisfying the needs of the private lender.
The private lender can’t afford to simply write off losses if they occur. The private lender will feel that loss, maybe even acutely. Only big banks and big companies can painlessly shrug off a loss as big as a defaulted mortgage. This is one reason why those companies can offer such low rates.
For the borrower who is self-employed or on commission, a private lender or a B-lender is usually a better fit. Same goes for anybody with bruised credit.
The interest rates for B-lenders range between 4.5 and 8.99% for a first mortgage. B-lenders offer lines of credit as second mortgages (second registrations on title), but not second mortgages. Private lenders offer second mortgages. Some–but few–private lenders also offered third mortgages.
Rates on a second mortgage range from 6 to 14.99%. Rates on a third mortgage are typically 12.99 to roughly 16%.
But here’s the other question people should be asking. What are the fees? The fees will change the interest rate that you actually end up paying. The fees can sometimes double or even triple the effective interest rate.
It’s challenging (or even impossible) to discuss fees without first having done a mortgage application. It’s like calling a car mechanic and asking him to give you a quote for a weird sound your car makes on the highway. The mortgage broker or agent will need numbers from you.
Moreover, each private lender is different and will charge different fees.
Just remember this: ask about the interest rate, and ask about the fees. And while you’re at it, ask about the renewal terms. You don’t want to have to pay off the mortgage and find a new lender every year. If that happens, your mortgage will simply grow and grow and grow…
At MortgageMop we’re always here to answer your questions. Even if you’re already working with another mortgage agent or broker.