Private Financing

Second Mortgages

If the down payment or equity requirement of the financing is simply too much, you may want to consider additional private financing from a secondary lender.

When there is a first mortgage approval or first mortgage already in place on the property and the borrower needs additional financing to complete the transaction, we can arrange private financing from a secondary lender. Second mortgages are at higher rates but typically represent a smaller portion of the overall financing. For example a buyer might arrange a first mortgage of $300,000 at 5.5% and require an additional $50,000. The pricing of the second mortgage will depend on the loan to value ratio.

In this example if the property was valued at $500,000 then the second mortgage would be at $350.000/$500,000 or 70% LTV. Typically at this ratio, the loan would be priced at about 14% plus fees. Note that even at this higher rate on the private financing from a private lender, the overall blended rate on the financing is about 6.7%. Now that makes good business sense.

300,000 x 5.5% = 16,500 annual interest
$50,000 x 14% = $7,000 annual interest
$16,500 + $7,000 / $350,000 = 6.71% average financing rate

Private financing is typically placed on 1 year terms in hopes that the second mortgage can be paid out from cashflow or from refinance by year 2.