Neighbourhood HoldingsRateSensePrivate LenderPrivate LenderTerm 1 yearStarting Rate 8.95%Starting Fee 2.00%
Three Point Capital1st mortgagePrivate LenderPrivate LenderTerm 1 - 2 yearStarting Rate 9.25%Starting Fee 2.00%
Alta West CapitalExpress 1stPrivate LenderPrivate LenderTerm 2 yearStarting Rate 9.49%Starting Fee 2.00%
Alta West CapitalFlex 1stPrivate LenderPrivate LenderTerm 1 yearStarting Rate 9.49%Starting Fee 3.50%
Neighbourhood HoldingsNational 1st MortgagePrivate LenderPrivate LenderTerm 1 yearStarting Rate 9.95%Starting Fee 1.00%
Alta West CapitalFlex BundlePrivate LenderPrivate LenderTerm 1 yearStarting Rate 9.99%Starting Fee 3.99%
VWR CapitalPrivate 1stPrivate LenderPrivate LenderTerm 1 yearStarting Rate 10.50%Starting Fee 2.00%
Vault CreditClassic 2ndPrivate LenderPrivate LenderTerm 1 yearStarting Rate 10.99%Starting Fee 3.00%
Alta West CapitalFlex 2ndPrivate LenderPrivate LenderTerm 1 yearStarting Rate 11.25%Starting Fee 4.00%
Three Point Capital2nd mortgagePrivate LenderPrivate LenderTerm 1 yearStarting Rate 11.75%Starting Fee 2.00%
- In BC, private mortgage rates start around 3% higher than rates offered by conventional mortgage lenders
- Private mortgage rates are influenced by the borrower’s equity, property location, and overall financial situation
- Private lenders can include individuals, Mortgage Investment Corporations (MICs), and trust companies
- When it comes to approval, private mortgage lenders prioritize property value over credit history
- They often provide short-term financing solutions with the expectation of an exit strategy to more traditional financing
- Working with a licensed BC mortgage broker can provide access to competitive private mortgage rates, facilitate negotiations, and assist with a smooth transition to prime lenders, offering an advantage in managing private mortgage costs and terms.
Key Factors Influencing Private Mortgage Rates
In British Columbia, four primary factors influence private mortgage interest rates: Loan-to-value (LTV), property location, income, and broader economic conditions.
Mortgage loan-to-value (LTV) is a ratio that measures the mortgage amount relative to the value of the property being secured. LTV is expressed as a percentage and can be calculated by dividing the mortgage amount by the home value. For example, an $80k mortgage on a $100k property would have an LTV of 80%. The lower the LTV, the more equity the borrower has, and the lower the risk for the private lender. If you have serious credit issues or unverifiable income, you may need a lower LTV to qualify for a private mortgage, especially for mortgage refinances and second mortgages.
In BC, a property’s location plays a significant role in determining the interest rate for a private mortgage. Private lenders generally prefer funding properties in popular housing markets such as the Greater Vancouver Regional District (GVRD), Fraser Valley, Greater Victoria, Nanaimo, or Kelowna.
Most private mortgage lenders are flexible when it comes to income documents, with some even offering a ‘stated income’ policy where the borrower ‘declares’ their income with minimal verification. However, if your income cannot be fully verified, you may be subject to higher interest rates with a private lender due to the increased risk with the application.
Broader Economic Conditions
Private mortgage rates can also be impacted by broader economic conditions. If the housing market looks unstable, private lenders might choose to raise their rates a bit to offset the risk. Also, The Bank of Canada (BoC) prime rate acts as the foundation for variable rates, so a shift in the broader economy can have ripple effects in the private lending industry.
As you can see, the combination of borrower-specific situations, property location, and the broader interest rate environment all contribute to the final interest rates offered by BC’s private mortgage lenders.
Private Mortgage Rates vs. Traditional Lender Rates
As you might expect, private mortgage rates will be higher than those offered by traditional lenders, such as banks and credit unions. The premium is primarily due to increased risk, including a higher possibility of loan delinquency. Additionally, the unique nature of private lending, such as its short-term focus and specialized services, contribute to these higher rates.
Unlike banks, which aim to maintain long-term relationships with clients, often over 25 years, private lenders usually expect borrowers to transition to prime lenders within 1-3 years. The rates for private lending can differ widely, but they typically start about 3% higher than those offered by prime lenders for similar term lengths and go up from there.
Remember that while traditional lenders may offer lower rates, private lenders can be a lifeline for those with lower credit scores or unique financial situations who have been passed over by banks and other prime lenders.
Pros and Cons of Private Mortgages
Private mortgages can be the best solution for many BC homeowners. However, they aren’t without their drawbacks. Here is our list of private mortgage pros and cons:
- More flexible lending criteria than traditional lenders
- Will accept unverifiable income and low credit scores are
- Expedited approvals are possible
- Interest-only payments available
- Much higher interest rates than traditional bank mortgages
- Additional fees can be costly
- Meant as a short-term solution only
When applying for a private mortgage, it’s crucial to understand the mortgage terms, particularly when renewing at the end of your mortgage term, penalties for early repayment, and the flexibility of making additional payments without incurring fees.
Private Mortgage Lenders in British Columbia: Who Are They?
In British Columbia, private mortgage lenders come in various forms, with most comprised of the following groups:
- Wealthy or retired individuals
- Mortgage investment corporations (MICs)
- Trust companies
- Other corporations established to provide mortgage financing
Private mortgage lenders in BC will prioritize the value and marketability of the property over the borrower’s credit history when setting their lending criteria, allowing for greater flexibility and creative lending solutions for diverse borrower situations.
Regardless of the type of private lender you deal with, it’s important to remember that they are a short-term solution and want borrowers to have an exit strategy. An exit strategy means a plan to transition out of the private lender and into a B-lender or prime lender within one to three years.
How are Private Mortgage Lenders Regulated in British Columbia?
In British Columbia, the regulation of private mortgage lenders falls under the purview of the British Columbia Financial Services Authority (BCFSA). The BCFSA is a regulatory agency that oversees the province’s financial services sector, ensuring the stability and integrity of the market. This mandate includes regulating mortgage brokers, private lenders, and other financial entities involved in the mortgage lending process.
The BCFSA’s role is critical in maintaining consumer protection and market fairness. It sets and enforces standards and licensing requirements for private mortgage lenders and brokers. These regulations ensure that lenders operate transparently, fairly, and financially sound. This is particularly important in the private lending sector, where the risk profiles are often higher than traditional lending.
Furthermore, the BCFSA provides guidelines on lending practices, interest rates, fees, and disclosure requirements to protect borrowers. These guidelines include ensuring that lenders offer clear and understandable loan terms and conditions. The authority also investigates complaints and can take disciplinary actions against lenders who violate regulations, thus maintaining trust and reliability in the financial services industry in British Columbia.
By overseeing private mortgage lenders, the BCFSA plays a crucial role in safeguarding the interests of borrowers and upholding the integrity of the mortgage lending industry in the province.
Case Study: Expedited Private Mortgage for an Overseas Canadian Buyer
- Client Profile: Canadian citizen living and working in Hong Kong.
- Property Type: Pre-built condominium in British Columbia.
- Situation: Committed to the condo in 2016 for $400,000. Upon completion in 2023, it was worth $650,000. The client required quick, short-term financing based on the market value, not the purchase price.
The client had a stable income, but it was in Hong Kong Dollars (HKD), making it difficult for Canadian financial institutions to verify. Furthermore, the mortgage needed to close within two weeks, as the property was nearing completion. Traditional lenders were not an option due to the income verification issues and the urgent timeline.
The client approached a mortgage broker who specialized in private mortgages, particularly for overseas buyers and complex income scenarios. The broker identified a private lender comfortable with the overseas income and the quick turnaround needed.
- Private Mortgage Lender: Vault Credit
- Loan Amount: $330,000 on a property now worth over $650,000
- Interest Rate: 8.49%, roughly the same as an open mortgage from a big bank at the time.
- Setup Fee: 2.5% of the loan amount, accounting for the expedited processing and risk assessment.
- Mortgage Type: An open mortgage, ensuring no penalties for early payout.
- Exit Strategy: The borrower planned to immediately list the condo for sale and intended to pay off the mortgage quickly once the client sold the property.
The client received the funds within a week, much faster than the initial two-week requirement. The client listed the property for sale, and within four months, the client successfully closed the deal and paid out the lender.
This case study demonstrates the flexibility and responsiveness of private mortgages, especially in scenarios involving overseas income and urgent financing needs. It also highlights the importance of having a clear exit strategy and the benefits of an open mortgage structure in such short-term financing scenarios.
How to Find the Best Private Mortgage Rates in British Columbia
Here are the steps to follow to obtain a private mortgage in British Columbia at the best possible rate:
- Engage a Licensed Mortgage Broker: In Canada, private lenders primarily work primarily through licensed mortgage brokers in Canada. A skilled broker can help you access the most competitive private mortgage rates tailored to your needs.
- Understand Your Property’s Appeal: Discuss with your broker how your property’s location and other unique features can influence a private lender’s offer.
- Prepare Your Financial Documentation: Before you apply, ensure all your financial documents are in order. Having clear and complete documentation will help expedite the process and support your case for lower rates.
- Ensure Honesty and Transparency: Always provide truthful and accurate information to the private lender. They are often willing to work through complex situations to find a solution. However, dishonesty is a significant concern. In our experience, instances where clients have provided misleading information have led to lenders declining applications that might have otherwise been approved.
- Understand the Lender’s Priorities: Knowing what private lenders value can increase your chances of loan approval. Generally, they prefer well-maintained properties, a clear and honest explanation of any financial hardships, and a practical plan for loan repayment (exit strategy). A proficient mortgage broker can guide you in highlighting these aspects effectively to appeal to lenders.
The Role of Mortgage Brokers
As mentioned, mortgage brokers play a pivotal role in the private lending sector and offer the following services to enhance the borrowing experience:
- Make Expert Connections: Mortgage brokers understand how to match borrowers with suitable private lenders
- Provide Financial Disclosure: A mortgage broker can provide a clear breakdown of the total cost structure of a private mortgage, including lender fees and potential payout penalties.
- Ensure an Efficient Approval Process: Borrowers can expect swift lender approvals with a broker’s assistance, often within 24 hours. In urgent cases, funding can be arranged in as little as 72 hours, though the typical timeframe is 2-4 weeks.
- Strategic Exit Planning: Brokers assist in devising a plan for transitioning from private to prime lenders, typically within 6 to 18 months, to support the borrower’s long-term financial health.
- Informed Decision-Making: Mortgage brokers offer expert advice on negotiating terms, ensuring borrowers are well-protected in the less regulated private lending sector.
Tips for Managing Private Mortgage Costs
The flexibility that private mortgage lenders can offer comes at a cost, in the form of higher mortgage rates and other expenses, such as setup fees, which can range between 1% to 3% of the loan amount. You may also be subject to renewal fees. However, with some careful planning, you can manage these costs effectively.
Most private lenders will offer ‘interest only’ payments. While only paying interest is not an ideal long-term strategy, it might be a good solution for managing your cash flow for the duration of the mortgage. Of course, maintaining on-time payments is one of the most important ways to manage private mortgage costs.
When Does a Private Mortgage Make Sense
British Columbian borrowers with bad credit or those needing financial solutions post-bankruptcy might find private mortgages a viable option. Real estate investors looking to fix and flip or use the Buy, Rehab, Rent, Refinance (BRRR) strategy may also find a private mortgage loan more accommodating than traditional financing.
And self-employed individuals and borrowers with foreign or irregular income who can’t meet stringent traditional lending requirements could also benefit from private mortgages. Private mortgages in BC also offer a path to rapid financing, which is ideal for bridge loans or when fast loan approval is necessary.
Frequently Asked Questions
What is a reasonable interest rate for a private mortgage?
Private mortgage interest rates can typically range from Prime + 2% up to Prime + 10%, depending on your Loan-to-Value ratio (LTV) and credit score. Use the table at the top of this page to see BC’s most up-to-date private mortgage interest rates.
Are private mortgages more expensive?
Yes, private mortgages are usually more expensive than conventional mortgages, as they come with higher interest rates and fees due to the increased risk for the lender. Keep this in mind when considering your mortgage options.
Is a private mortgage a good idea?
Sometimes. Ideally, you’d work with a prime lender and, failing that, a B-lender. But if neither option is available, private mortgages can be a good fall-back option. But be aware that they often charge higher interest rates and place lower emphasis on credit scores or financial history. Consider the value of your property and weigh the potential benefits against the added costs.
Who are considered private mortgage lenders in British Columbia?
Private mortgage lenders in British Columbia include wealthy individuals, retired individuals, mortgage investment corporations (MICs), trust companies, and other corporations established for mortgage financing. These lenders offer alternatives to traditional banks for obtaining a mortgage.
In what scenarios do private mortgages make sense?
Private mortgages make sense for borrowers with bad credit, post-bankruptcy, real estate investors, or irregular income, and when expedited approval is necessary. They can be a viable option in any of these scenarios.