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Private Mortgages vs. Chartered Bank Mortgages – What Is the Difference?

Private Mortgages

Shopping for a mortgage can be stressful. You want to make the right decision. You want to get a good interest rate. And most importantly, you don’t want to make a mistake. In most cases, this means that many homeowners default to getting a mortgage with the bank, usually the bank where they do their banking. Why? It’s often due to familiarity. You’ve been with the bank for years, and you are comfortable with them.

However, defaulting to getting a mortgage with a chartered bank may not be the best move. There are other options – namely private mortgages, which offer many great benefits. The following takes a look at the difference between private mortgages and chartered bank mortgages.

What Is a Private Mortgage?

Private mortgages are an effective alternative to traditional mortgages from the bank. They are ideal for individuals who are self-employed, have credit issues, and offer an alternative loan source to the banks. Loans typically come from private lending companies and have different lending rules. Private mortgages and working with mortgage brokers is not as rare as you think. They account for about 40% of the mortgage market.

What Is a Chartered Bank Mortgage?

A chartered bank mortgage is a mortgage from a financial institution that is regulated under the Bank Act. Due to industry regulations as well as limited access to mortgage products, your options are limited to what a specific bank can offer.

There are a number of key areas where private mortgages and chartered bank mortgages differ. They are outlined here:

Different Lending Rules

Lending rules are one of the key differences between these two mortgage options. In general, mortgage lending rules tend to be stricter with traditional banks, since they are the facilitator of the loan as well as the lender. This means you may be limited in your options and how the mortgage is structured. For example, insured and uninsured mortgages are treated differently by banks and private mortgage lenders.

Qualification

It is more difficult to qualify for a mortgage with a bank than a private lending brokerage. If you have a unique situation, such as being self-employed, being new to Canada, don’t have perfect credit, or have some financial hurdles, you will have more difficulty getting a bank mortgage. Private mortgages have more relaxed qualification requirements, making them an ideal mortgage solution for people with many types of financial situations.

Income Verification

Banks require a significant amount of paperwork and proof of income to qualify for a mortgage. You will need to show proof of employment, proof of income, a good credit rating, proof of a down payment, and more documentation. For many, this also means they will need to secure a co-signer for their mortgage if they do not meet the bank’s income threshold. Private mortgage lenders have fewer restrictions and require less information to verify income and qualify you for a mortgage, since they are more concerned about the actual property being purchased.

Calculating Mortgage Amounts

How much of a mortgage you qualify for is important. Banks and private lending brokers often use different calculations to determine how much of a mortgage you qualify for.

Learn more about your mortgage options. Contact our expert team of mortgage brokers today to get more information about private mortgage options.

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