Home > Mortgage Loans > Private Mortgages versus Institutional Lenders - Estimating the Cost Factor
Private Mortgages versus Institutional Lenders - Estimating the Cost Factor |
|
At the time of borrowing an amount, every
person looks for the lenders or organizations that cast low rates of interest than others. A borrower ever expects low, fix rate of interest from the private mortgage lenders, aggressive bank or institutional lender. But among these, private mortgage lenders charge highest rate of interest. Yet, their response is very eye-catching. Surely, no one wants to pay 12% in a 6% interest rate environment, but if a property is not producing any cash flow, a higher-interest, asset-based loan may be the only way to promptly and reliably get financing. Consider the case of Winter & Company Commercial Real Estate Finance, which created W Financial Mortgage Fund I, LLC, a direct private mortgage lender, to facilitate lending to commercial real estate professionals. They now handle funds at projects' developmental stage or in transitioning a property from one state to another. A crucial point is that some people are ready to pay a bit higher amount of interest for a finite period of time. How important is the need of the loan also counts a great deal. Borrowers may ask for variations of interest rates also. But these things are not possible in a company. They set some fixed interest so that borrowers may be conscious of them. Private mortgage lenders are keen to take higher interest rates than the institutional lenders. But they survive with amazing glory, as their help is easily accessible. One can get private mortgage loan within a very short period of time. Compared to the prospect of bringing in much more expensive equity partners, paying 12% for a year or so may not look so terrible, especially if the loan is structured to permit payments of interest only. Depending on the scenario, some loans may include an interest reserve to help the owner/developer get through the non cash-flowing part of the project. Now come to the case of bridge loan, which is also known as swing loan or gap financing. Bridge loan is a form of a second trust financing that is secured by the borrower's present home (which is usually for sale) in a procedure that allows the profits to be used for closing on a new house before the present home is sold. In most cases a bridge loan is just the first part of a two-step financing process: (1) Bridge followed by (2) Permanent financing. Time can be well spent during the Bridge phase setting up the permanent phase of the project financing to succeed smoothly. Banks typically underwrite loans with a focus on the property's current cash flow and the borrower's credit profile. On the other hand, private mortgage lenders will consider the deal from a more comprehensive point of view. They even take into consideration the market value of the property, the complexity of any construction that may be part of a developer's business plan, and of course, the borrower/developer's track record, level of experience, net worth and liquidity. But there are some risk factors also which the private mortgage lender may have to face sometimes. Therefore he must be ever ready to step into the breach if necessary to complete a project and get it to the point where it can be brought to market or begin to produce cash flow. |
|
| ------------------------ |
|---|
|
|
| ------------------------ |
|---|
|
|
|
|
| ------------------------ |
|---|
|
| ------------------------ |
|---|
Custom Search
|
| ------------------------ |
|---|
|
|
| ------------------------ |
|---|
Consumer Alerts | About | Bookmark Us | Contact | Espanol | Privacy Statement | Copyright | Terms & Conditions | Financial Widgets | SiteMap
Copyright © 2006 Credit Loan, LLC. 235 APOLLO BEACH BLVD, STE 218 Apollo Beach, Florida 33572 All rights reserved.
Disclaimer: The content provided on CreditLoan.com is for informational purposes only; do not make any financial decisions based on its content. Financial decisions are personal, based on an individual's situation. Consult with a financial professional before making any financial decisions. CreditLoan.com is not liable for your financial actions.
