Private or alternative mortgage lenders base their rates on the area, location, type of property, degree of risk perceived and estimated costs of administration. Each private mortgage interest is quoted on individual circumstances. But one is certain, your mortgage will be approved at the best rate for the property you are buying or refinancing based on your borrower profile.
Interest rates for alternative or private mortgage loans are higher compared to traditional lending since your borrower profile is considered riskier than average. Each mortgage deal is unique and may have a specific interest rate, but in general interest rate can vary from 4.99% to up 20%.
Interest rates depend on LTV %, property type, and location, whether it is 1st or 2nd or even 3rd mortgage (position of the mortgage). The lower your LTV, the better the mortgage position (a first mortgage being better than a third mortgage), and the better your current credit situation, the better your rate is likely to be. If there are more risks for a lender, interest may be higher.
Most private lenders consider only fixed – interest rate while a small percentage of lenders offers variable interest rate. Most lenders provide fixed-rate interest-only mortgages while others provide both, interest – rate and amortized mortgages. Mortgages can be fully open without the penalty to break the mortgage or can be with up to a 3-month penalty for prepayment.
Payments on a private mortgage are usually “interest-only” payments, which is one of the reasons this may be a good option for someone with temporary cash flow issues, or an investor.
Due to the higher interest rate and riskier borrower profile, most alternative and private lenders do not extend mortgage term beyond 3 years. That period allows you to build your credit quickly and eventually borrow at cheaper interest rates. Once you’ve paid off your private loan and gotten your financial situation into better condition, look for a refinance or second mortgage loan that can assist you with a more long-term solution.