Private mortgages are becoming more popular in Ontario

The latest survey by the Financial Services Regulatory Authority of Ontario (FSRA) shows that affected by high inflation, growing interest rates, and a slowing economy, more Ontario residents who want to enter the housing market these days are considering private mortgages instead of traditional loans.

According to the poll, 10.6% (35,568) of mortgages signed in 2021 were private. FSRA believes the number went up last year and will keep growing in 2023.

“With increasing interest rates, high inflation, and a slowing economy, more consumers are facing difficulties with qualifying for a traditional loan,” – Huston Loke, executive vice-president of market conduct at FSRA, noted.

“It’s vital that homeowners who choose private mortgages fully understand how their loan works, its pros and cons, and the real cost of it.”

Although we can see an increasing number of Ontarians leaning toward private mortgages, the survey shows that there’s a significant knowledge gap among homeowners when it comes to comparing private loans with traditional ones.

It turns out 54% of owners think payments for a private mortgage will go to interest and the principal payment. However, “in reality, many private mortgage payments go towards servicing the interest only.”

The main reasons for choosing private lenders, according to the poll, are more flexible terms (26%), a less difficult application process (13%), and the opinion that they’re more suitable for Canadians who can’t show a steady income (12%).

However, Ontario residents are not ready to pay more for a private mortgage: almost 66% of respondents said they wouldn’t pay extra for lender fees or broker commissions.

“Conditions for mortgages from private lenders often differ from the ones traditional banks offer.  Higher lender fees, interest-only conditions, and shorter terms – these are only a few of them,” – Loke explained.

“Private mortgages can be a reasonable variant for certain borrowers, for instance, for those who can’t qualify for a traditional mortgage. Nevertheless, in most cases they should be treated as a short-term option, and not as a long-term solution.”

With 20+ years of experience as mortgage brokers in Ontario, we can offer our clients not only wide variety of private lenders, but also alternative banks, who are filling the gap between a traditional bank and a private lender. In most cases this could save you a lot of money due to the lower rates and fees compared to private mortgage, however if you need money quick and with much less questions – private mortgage could be a short-term solution for you.

We have access to many private lenders with different risk appetite, rates and property requirements, so talk to an experienced mortgage broker before accepting first available private mortgage quote!