Pros and Cons of a Private Mortgage
Private mortgages refer to mortgage loans that are provided by mortgage investment companies (MIC) or private individuals rather than a banks or credit unions. They offer advantages and disadvantages that borrowers should consider when evaluating their financing options.:
Pros
Speed
Private mortgages often have faster approval times than traditional mortgages because they are funded by private lenders who have more flexibility in their lending criteria and processes.
Flexible Terms
Private mortgages offer more flexible terms than traditional mortgages, allowing borrowers to negotiate repayment terms that meet their unique needs and circumstances.
Accessible for Non-Traditional Borrowers
Private mortgages are accessible to borrowers who may not qualify for traditional mortgages, such as those with poor credit scores or those who are self-employed. Some borrowers may be looking for a short-term bridge loan or construction financing, so a private mortgage is ideal.
Creative Financing Options
Private mortgage lenders may be more open to creative financing options such as interest-only payments, balloon payments, or bridge loans.
Cons
Higher Interest Rates
Private mortgages often come with higher interest rates than banks and credit unions because private lenders are taking on more risk by providing financing to non-traditional borrowers or those with poor credit scores.
Shorter Loan Terms
Private mortgages often have shorter terms, usually 1 year. Most private lenders will renew if the mortgage is in good standing.
Higher Fees
Private mortgage lenders may charge higher fees than traditional lenders, including lender, broker fees, legal fees, and appraisal fees.
In summary, private mortgages can be a good option for borrowers who do not qualify for traditional mortgages, need short term financing or who need more flexible terms. However, borrowers should carefully consider the higher interest rates and fees associated with private mortgages. It is important to do your research and compare all financing options before making a decision.