The reality for many prospective home purchasers is that it is getting more and more difficult to secure stable financing from conventional financial institutions, with the continual rise of interest rates, and the even-more-challenging ‘qualifying rates’. Many buyers with long closing dates are finding that while they may have previously been approved for a conventional mortgage, banks are rescinding approvals prior to closing, putting buyers in compromising positions. In order to avoid the legal costs and battle of simply failing-to-close on a purchase, many are turning to the unregulated private sector to get deals done.
The Toronto Star had a great article on this uprise of Private Mortgages, and the high costs, and risks, involved.
One issue is private lenders’ agreements are often just one-year contracts, and they could call in the loan at the end of it.
“Even though you’ve been a good borrower, they may be like ‘I need my money back,’” she said, adding she tends to think of private lenders as a last resort. Sialtsis said anyone using a private lender needs to ensure they have a “solid” exit strategy.
While a needed option for many, looking to unregulated funding should be an absolute last-resort option, when all conventional avenues fail.