What is a Private Mortgage?
Private Mortgages, also commonly known as Solicitor Loans or Solicitors Funds, have been common in Australia for over 100 years. They originated by solicitors putting borrowers and lenders together, securing the arrangement by the way of a mortgage over the borrowers property. The market for Private Mortgages has grown significantly since, but the basic premise of borrowing money directly from an individual investor rather than a bank still exists. Today though, rather than solicitors arranging the loan, specific businesses have evolved that pool individual and institutional investor funds. These businesses are known as Mortgage Funds.
They still play an important role today as they are typically a sympathetic lender that concentrates predominantly on the physical property offered as security. They can typically lend up to 70% of the valuation of the property on a first mortgage basis, but will also consider specialised securities at lower LVRs. In addition to this, private mortgage lenders generally require far less information and are able to provide faster decisions and ultimately faster settlements.
As an active participant in the Private Mortgage space, The Finance Professionals has a deep pool of lenders willing to consider almost any scenario. Our Private Mortgage Funders will consider lending on any of the following basis:
- First Mortgage
- Caveat & Second Mortgage
- Development Funding
- Mezzanine Finance & Preferred Equity
How Does a Private Mortgage Work?
A Private Mortgage at its heart is a very simple type of finance. Funds are lent to the client who provides real estate as security. The interest rate is normally fixed with repayments either required monthly or it can be capitalised into the loan. The term will generally be between one to two years. The loan will be for non NCCP purposes with either the borrower being a company or the security being one of a commercial nature. All in all, a very simple loan.
When assessing an application, many Private Mortgage Funders will typically consider only the following aspects:
- 1. The security provided
- 2. The exit strategy (or how the loan is to be repaid)
The security provided is paramount for the Private Mortgage Funder. They will have the security valued conservatively and they will then decide how much they are comfortable to lend on it. At the forefront of their minds will be the thought “what could I quickly sell the property for if I am forced to take possession to recoup my loan?” As such, their valuation will normally be below market expectations. A borrower has to understand the Private Mortgage Funders are more than happy to lend funds but they will do it on terms that very much protect their interests. It’s easy to understand as quite often the actual money lent will be an individuals savings or superannuation and the lender has no interest in losing this for their client.
The second aspect they will consider is how the loan with be repaid, or the exit strategy. As discussed previously, Private Mortgages are typically set for a maximum 1 to 2 years at a fixed interest rate. The lender will want to know clearly how the funds will be repaid when the loan expires. They do not want to take possession at the end as this is a timely and costly exercise. As such they will typically request borrowers outline exactly how they will repay the facility and it will need to be accepted by the lender.
There are numerous Private Mortgage Funders in Australia and each have their own differing requirements. They all have differing interest rates as well. These interest rates can start from as low as 6.5% but can also be dizzyingly high. Application Fees, Brokerage Fees, Valuation Fees and Legal Fees are all payable as well, meaning it can be quite an expensive financing solution. They will however consider most scenarios and securities and can quickly solve problems you have.
Why Choose The Finance Professionals for Private Mortgages?
We have over 100 different Private Mortgage Funders on our books. It’s not something you can simply search for, it’s something that requires detailed work and relationships. We are always on the lookout for new lenders as we understand it is ever changing landscape. We want to be able to provide you with a Private Mortgage that is reasonable for everyone.
We also understand that this segment of the market can be a bit like the wild west. A number of our numerous competitors are more than happy to provide finance at extortionate interest rates with significant fees attached. This is all done simply to get the deal done rather than really trying to find you the best deal. We will try at all times to get to the ultimate source of the funds, rather than adding another broker, saving you on additional brokerage costs. We also endeavour to use only reputable lenders who have a history of lending funds at reasonable interest rates at a cost that are within reason. We try to not use lenders that require significant upfront fees, but we are aware that sometimes this may be the only option. All in all we try extremely hard to find lenders that match your requirements. We want you to recommend us to your friends, family or clients for their Private Mortgage needs, and you only do that by providing solutions that everyone is happy with.
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