The year was 1996 and I was sitting across the desk from the man that would not only teach me about private lending but would become a mentor, investor and friend. The question was asked “do you know what a mortgage is?” to which I nervously replied “no”. I had heard the word before but at the ripe age of 18 years old I had not yet had a mortgage nor did I understand what they were or why they were needed. The man went on to share with me that he and his friends were providing money to people that were not able to get the money they wanted from a bank for a variety of reasons. These people would provide a piece of real estate as security and they would borrow money at interest rates that were 1.0% per month to 2.75% per month plus fees. He went on to share with me that these opportunities were considered high risk and were generally less than 6 months in length. From from time to time he would have to foreclose (another foreign term to me at the time) but because he was always lending less than what a property was worth he had never lost his money or the money of his friends. Continue reading “Why do private lenders matter?”
This is a great question that we often get asked and often consider when someone really needs cash but may not qualify to refinance their existing mortgage OR they do not want to pay the penalties associated with paying out an existing mortgage. There is no perfect answer or a “one size fits all” solution, however here are some things to consider if you are evaluating a second mortgage.
CNN Money posted an article today titled “BofA considers account that puts an end to overdrafts” which I think is a brilliant idea. For those of you who have not been following the overdraft issue it may be difficult to appreciate this potential move by B of A but trust me when I say that this is a move in the right direction. Banks earn money when people go into their overdraft by charging a flat fee per instance or per month. The fees can be a few dollars per instance to a monthly charge of up to $5.00 in additional to interest rates that can run up to 21.0% per year. This may not seem like a lot of money but across the portfolio of accounts that a bank would have this revenue can quickly add up. Continue reading “This won’t make me popular but it makes sense”
If someone were to ask me “what is the one topic you have to answer or address most often” I would without hesitation say interest rates. Borrowers are always very intent on knowing what interest rate they will get, the reasons behind why one bank or lender charges more than another in addition to telling me what interest rate they think they should pay without having a sense of how interest rates are determined or how their specific situation impacts the answer. I could spend time explaining why this is a popular topic however I thought it would be more interesting to share an example of how a bank or lender would address the topic if they were perceived to have a higher Continue reading “The one topic I address most often”
We get asked this question a lot so I thought it would be a good idea to share the answer with everyone. For residential mortgages typically brokers are paid by banks and lenders. The longer the term you choose the more money a broker earns. A one year mortgage might pay a broker up to 0.50% of the financing amount whereas a five year mortgage might pay a broker as much as 1.10% of the financing amount. Not every bank pays the same amount and some pay more than others. As well, most banks and lenders will allow a mortgage broker to use a portion of their commission in exchange for providing a client with a lower rate (called a buy-down). Some banks allow brokers to earn points towards vacations, office equipment and other non-cash rewards. As a borrower it is important to know how your mortgage broker is compensated to ensure that you are getting the mortgage that best matches your needs. It is a very competitive marketplace with many brokers competing for your business so don’t be scared to ask how your broker is getting paid.
On a side note, private mortgages do not follow the same compensation formula and can vary widely from broker to broker. For private mortgages the lender will charge a fee and a broker will either charge a separate fee or share in the lender fee. These fees can be as low as 1.0% of the financing amount and have no limit.
If you have questions about your mortgage or how your broker is being compensated, please email email@example.com or visit www.bridgecap.ca/dylan