How Short-Term Private Mortgages Can Save the Day for Quick Property Deals
Buying and selling homes can often feel like an intricate juggling act. You might have secured a new home but are still waiting for your current one to sell.
A short-term private mortgage can help you get your new home, even if your current home hasn’t sold yet. This type of mortgage offers the flexibility and support needed when traditional financing options fall short.
Key Takeaways
Short-term private mortgages are especially helpful if you already have a new property and are waiting for your current property to sell.
Unlike a bridge mortgage, short-term private mortgages don’t require your home to be sold.
Working with a mortgage broker will give you the most mortgage options, including short-term private mortgages.
Case study: Downsizing to a Luxury Condo
A couple who were looking forward to becoming empty nesters decided to buy a luxury high-rise condo in Toronto. With a solid combined income of $230K and top-notch credit scores, they were well-prepared for this move. They agreed to purchase the condo in 2018, planning for occupancy in late 2023.
By December 2023, they had moved into their new condo and put their old home up for sale, expecting to use the sale proceeds to fund their purchase. Unfortunately, selling their previous home proved more challenging than anticipated.
The Bank Refused to Give Them a Mortgage
In January 2024, the couple had their home listed, but no offers came through. Worried about their new home’s closing date, they approached their bank in February.
Despite having an excellent credit rating and a combined household income of $230,000, the bank turned down their mortgage application. The high mortgage rates and their inability to manage two mortgages at once were the main reasons for the refusal.
Should They Lower Their Listing Price?
You should first consider dropping the listing price of your first home. This can attract more buyers and increase your chances of getting offers.
If you still don't get any offers, it’s time to look into a short-term private mortgage. These loans allow you to use both the old and new homes as collateral, giving the lender more security, without the home needing to be firmly sold.
2 Things to Know When Buying a Condo
1. Interim Occupancy: The Rental Phase
Interim occupancy is the phase before the condo building is fully registered but is safe for living. Here, you can move into your new unit and start living there, but you do not legally own your unit.
Instead, you pay an occupancy fee to the developer, which is like paying rent. This fee typically includes:
Interest on the Balance Owed: Calculated from the unpaid portion of the purchase price.
Estimated Property Taxes: Until the building is officially registered.
Maintenance Fees: To cover the cost of maintaining the building’s common areas.
The length of this period can vary, sometimes lasting several months based on how long it takes to complete and register the entire condo development.
2. Final Closing: The Official Transfer Process
Final closing happens once the condo building is complete and registered with the Land Registry Office. This phase marks the legal transfer of the unit to you. During this period:
Legal Title Transfer: The ownership of the unit is legally transferred from the developer to you, making you the official owner.
Mortgage Activation: You need to secure your mortgage financing to pay off the remaining balance of the purchase price. This is when your mortgage payments will begin..
Final Adjustments: You may need to settle any final financial adjustments with the developer, such as prepaid taxes or maintenance fees.
Bridge Mortgage vs. Short-Term Private Mortgage
Traditional bridge mortgages provided by banks require a buyer for your current home before funds are released. This means if you don’t have a firm offer, you won’t be approved. Short-term private mortgages, on the other hand, offer more flexibility.
Key differences of short-term private mortgages include:
Collateral: Short-term private mortgages let you use both your existing property and new purchase as collateral, increasing security for the lender, allowing for more flexibility in qualifying..
Qualification: Simpler qualification processes with private lenders, and a firm sale on your old home is not required.
Down Payment: A larger down payment may be required, which eliminates the need for mortgage insurance.
Rate: Higher rates allow for flexibility in term length and no payout penalties.
Why Short-Term Private Mortgages Are a Great Option
Securing the short-term private mortgage can not only relieve stress but benefit you in the long run. Let’s say you’ve only been receiving lowball offers on your home.
With a short-term private mortgage, you don’t have to take the first offer you receive just to get the deal done in time for your new home purchase. Instead, you can use the short-term private mortgage until you get an offer you are happy with on your old home.
In the case study above, by waiting a bit longer, the couple received and accepted a significantly higher offer—$120,000 more than the initial one. Once your old home is sold, you can refinance your short-term private mortgage and move it to a traditional mortgage.
3 Key Takeaways
Bridge Mortgages: Essential In Slow Markets and Quick Closes
Short-term private mortgages are critical for homeowners who are stuck between selling their existing home and buying a new one. These short-term loans enable you to secure the necessary funds to complete the purchase of a new property before your current home is sold.
This is especially useful in a slow housing market where selling can take longer than expected. For instance, the couple in the case study used a short-term private mortgage to move into their new condo before even accepting an offer to purchase their old home.
2. Private Lenders: Support When Traditional Lenders Fall Short
Private lenders can be immensely helpful when traditional banks and financial institutions fail to provide the needed support. Unlike conventional lenders, private lenders are more flexible and often willing to consider unique situations.
When the case study couples’ bank declined to offer a mortgage because of high interest rates and the risk of carrying two mortgages at the same time, a short-term private mortgage provided the solution they needed.
3. The Importance of a Backup Plan
Navigating real estate transactions can be complex, and it’s crucial to have a backup plan in place. The case study highlights the importance of working with the right team and preparing for unexpected hurdles.
Despite having strong financial standing and excellent credit, they faced challenges that could have derailed their plans. By working with a mortgage professional and securing a short-term private mortgage, they gained the flexibility to reject lowball offers and ultimately secured a better sale price for their old home.
Is a Short-Term Private Mortgage Right for You?
With so many mortgage options, it can be tough to know which mortgage type is right for you. That’s why it’s essential to have the advice of a mortgage expert.
At Spire Mortgage, our mortgage brokers dedicate themselves to understanding your unique needs, ensuring you get the best advice possible. For answers to all your mortgage questions, reach out to Spire Mortgage.
