Our article Is refinancing a private mortgage loan with another private lender worth it? Aroused much interest. Several clients have contacted us claiming they had been solicited by other companies in order to refinance their private mortgage loan currently with Victoria Financial Inc. Following the discussions we had with these customers, we thought it was important to write a continuation of the article.
The cocktail of fees often between $ 7,000.00 to $ 15,000.00 is not the only factor to consider when considering a change of private lender. Here are other things to think about.
Does the private lender presented to me have a good reputation?
A good way to check is to do a short Google search with the name of the private lender, and then see if he has a good rating. In addition, testimonials available online on Google business, Facebook or LinkedIn can be viewed to find out the opinion of other customers.
Since when are they in business, and who are the administrators? You can get this information for free on the Registraire des entreprises.
Does the new lender offer the option to renew the loan when it is due?
It is important that you do not hit a wall at the end of your new private mortgage loan. You must therefore make sure that the deed of hypothec you are about to sign contains a clause regarding the renewal of the loan.
In conclusion, if the private lender does not offer a renewal, you will need to make sure that you have the funds available to repay the full amount when the loan expires.
The switch can be very expensive; here is a true story experienced by one of our customers.
Most recently, the loan of one of our clients was due. Despite the renewal offer he received, he did not contact us to discuss the options available to him.
A mortgage broker solicited him via mail to invite him to change private lenders. The new lender presented offered a lower interest rate, all of which sparked a tantalizing economy.
However, this lender required several fees that proved to be more expensive than those requested for a renewal with us.
Here is a comparison chart of the two options available to this client :
|Current financing with Victoria Financial||Financing offered by the new private lender|
|Loan amount||$ 60,000.00||$ 80,000.00|
|Initial lending fees||$ 1,250.00 (renewal)||$ 6,500.00 (initial fees)|
|Brokerage fees||Not applicable||$ 3,500.00|
|Notary fees||Not applicable||$ 2,050.00 (mortgage, release and title insurance)|
|Monthly payments||$ 750.00||$ 800.00|
|Total cost of interest||$ 9,000.00||$ 9,600.00$|
|Total cost of the loan||$ 10,250.00||$ 21,650.00|
|Cost of borrowing percentage||17.08%||27.06%|
In summary, the client’s cost of borrowing went sky high at 27.06% and it cost him more than $12.000.00 in transitional fees to earn a residual amount of only $8,000.00$.
CAs you can see, the idea of a lower interest rate was tempting at first sight. However, when the client realized the magnitude of the fees once he was at the notary’s office, he was not at all excited by the idea!
On the other hand, he had already signed an agreement with the new private lender as well as with the broker. He was therefore bound to them without being able to go back. The cancellation of the financing contract would have cost him a cancellation fee representing brokerage fees, processing fees and notary fees totaling $ 12,050.00.
How can you make a more informed choice?
We always recommend that clients contact their original private lender. Unknowingly, customers sometimes have the option of obtaining an additional disbursement or to capitalize part of the interest in order to reduce their monthly payments. These options do not require the intervention of a notary, which helps minimize their costs.
In almost all cases, switching to a private lender is an option to avoid. The related costs are important and too often presented to the client at the last minute at the notary’s office.
If you have any questions regarding your mortgage renewal with Victoria Financial or if you would like to refinance your private mortgage with us, please contact us so that we can enlighten you.
You can fill a contact form via our website or call us at 1 (877) 220-7738, extension 1.