Module 3 - Working for Borrower

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Questions and Answers

What does a lending structure refer to?

The different types of borrowers in the lending market

The regulatory framework governing the lending industry

The components that make up a loan, such as loan term, interest rate, collateral, and repayment (correct)

The marketing strategies used by loan agents

How do brokers decide on a loan structure for a borrower?

By offering fixed interest rates regardless of the borrower's needs

By providing loans with longer terms to minimize perceived risks

By analyzing the borrower's risks and matching them with a lender who offers the best product (correct)

By allowing grace periods for borrowers who cannot make their payments

What is a common risk associated with private mortgages?

Guaranteed favorable renewal terms for borrowers

Longer terms resulting in higher interest payments

Extensive grace periods for borrowers who miss payments

Interest-only payments leading to unchanged balances at the end of the term (correct)

Why do many private lenders not allow a 'grace period' for borrowers who miss payments?

To minimize their financial risks associated with lending Signup and view all the answers

What is a characteristic of private lenders' terms compared to traditional lenders?

Private lenders have shorter terms and offer less favorable renewal terms Signup and view all the answers

In what way do private lender mortgages differ from traditional lender mortgages?

Private mortgages are mostly interest-only, while traditional mortgages have fully amortizing payments Signup and view all the answers

Why do brokers want to offer the borrower a loan appropriate to their needs?

To minimize the perceived risk of the borrower Signup and view all the answers

What is the primary role of brokers when matching borrowers with suitable lenders?

To analyze the risks of the borrowers and match them with lenders offering suitable products Signup and view all the answers

What is the purpose of considering a prepaid private mortgage term to bridge the gap until the client's income is at a level where they can qualify for traditional financing?

To protect the borrower's exit and ability to borrow from a traditional lender Signup and view all the answers

What should the borrower ask the broker to do in terms of calculating the net difference between the cost and interest of a second mortgage versus the cost of interest of refinancing a first mortgage?

Ask the broker to do the calculations for them Signup and view all the answers

What is the purpose of obtaining a commitment letter from a lender?

To outline the rate, fees, and conditions before a formal commitment Signup and view all the answers

In what situation might taking a second mortgage be the only option for the borrower?

When they have an existing first mortgage that cannot be increased Signup and view all the answers

Why is it important for lenders and brokers to thoroughly read through mortgage commitments and related disclosures with the borrower?

To make sure that they fully understand each item in the commitment and related documentation Signup and view all the answers

What is the purpose of the lender charging a lender or administrative fee on top of the interest rate?

To ensure the client has a reasonable interest rate. Signup and view all the answers

How should communication with the borrower be best done during the private lending process?

By phone or in person. Signup and view all the answers

Why is it advisable to work with a broker rather than directly with a private lender as a borrower?

A broker knows their client and can find the best mortgage for the borrower. Signup and view all the answers

What is a critical factor in preparing private mortgage exit strategies?

Paying off consumer proposals from advance proceeds. Signup and view all the answers

What should be done to assist in increasing the credit score?

Pay bills on time and keep credit card balance below 30% utilization. Signup and view all the answers

What information should be disclosed to the borrower during the private lending process?

Material risk disclosure related to specific mortgage recommendations and cost of credit disclosure. Signup and view all the answers

What are the costs involved in private lending besides interest rates?

Legal fees, appraisal fees, and broker fees. Signup and view all the answers

How do private lenders ensure comfort in knowing what they are getting into?

By obtaining title insurance on the mortgage. Signup and view all the answers

What is one reason private lending is often used for residential properties?

Borrowers with less-than-perfect credit scores Signup and view all the answers

Why might a borrower face a power of sale situation?

The property value is less than the mortgage amount owing Signup and view all the answers

What is a factor contributing to the increased cost of private lending?

Stringent regulations and tighter criteria for private lenders Signup and view all the answers

In commercial lending, what is the primary basis for approval?

Property's cash flow Signup and view all the answers

What information should an agent gather from the borrower to make an informed decision?

Income and expenses, life events, and property details Signup and view all the answers

What do lenders consider significant in the appraisal of a property for private mortgages?

Adjustments made to comparable sales Signup and view all the answers

What could affect the annual percentage rate (APR) in a private mortgage?

Renewal terms and extra fees charged by the lender Signup and view all the answers

What is one common term or condition that could impact a borrower in a private mortgage?

Lender's prepayment penalty policy Signup and view all the answers

What is the borrower's responsibility regarding legal fees in a private mortgage?

The borrower pays all legal fees without having a say in the choice of legal representation Signup and view all the answers

Why is it important for the borrower to seek independent legal advice/representation in a private mortgage?

To review and understand the mortgage and legal documents without interference from the lender Signup and view all the answers

What is the impact on the borrower if early repayment is not mentioned in the commitment letter but only covered in the mortgage documents?

The borrower may be significantly impacted by the lack of clarity on early repayment terms Signup and view all the answers

Why do some borrowers need a private lender?

The borrower is outside of GDS/TDS requirements for institutional lenders Signup and view all the answers

Why do private lenders often have higher interest rates and fees?

There are increased risks to the lender if you cannot prove your income or credit worthiness. With increased risk comes an increase in rates and fees Signup and view all the answers

What typically happens a year from now when a private mortgage matures?

The borrower follows an exit plan to improve credit or financial situation to switch to a prime or alternative lender Signup and view all the answers

Are private mortgages open for repayment?

Yes, most private mortgages are fully open, but this is based on the lender's commitment Signup and view all the answers

What type of property situation might lead to the need for a private lender?

The property is unique in structure or location Signup and view all the answers

Study Notes

Lending Structure and Loan Decision

A lending structure refers to the arrangement of a loan's terms, including interest rates, fees, and repayment conditions.
Brokers decide on a loan structure for a borrower by considering their financial situation, credit score, and loan requirements.

Risks and Characteristics of Private Mortgages

A common risk associated with private mortgages is the higher interest rates and fees compared to traditional lenders.
Private lenders often do not allow a 'grace period' for borrowers who miss payments, as they need to ensure timely repayment.
Private lenders' terms are typically shorter and more flexible than traditional lenders, with higher interest rates and fees.

Broker's Role and Responsibility

Brokers want to offer the borrower a loan appropriate to their needs to ensure a successful loan experience.
The primary role of brokers is to match borrowers with suitable lenders and provide guidance throughout the loan process.
Brokers should consider the borrower's financial situation, credit score, and loan requirements to recommend the best loan option.

Private Lender Mortgages vs. Traditional Lender Mortgages

Private lender mortgages differ from traditional lender mortgages in terms of interest rates, fees, and repayment conditions.
Private lender mortgages often have higher interest rates and fees, but offer more flexibility and shorter loan terms.

Private Mortgage Exit Strategies

A critical factor in preparing private mortgage exit strategies is to consider the borrower's long-term financial goals and repayment plans.
To assist in increasing the credit score, borrowers should make timely payments, reduce debt, and monitor credit reports.

Communication and Disclosure

Communication with the borrower should be clear and transparent during the private lending process.
The borrower should be disclosed information about the loan terms, interest rates, fees, and repayment conditions.
The borrower should ask the broker to calculate the net difference between the cost and interest of a second mortgage versus the cost of interest of refinancing a first mortgage.

Lender's Role and Responsibility

The primary role of lenders is to provide loan options to borrowers and ensure timely repayment.
Lenders ensure comfort in knowing what they are getting into by thoroughly reviewing the borrower's financial situation and credit score.
The lender charging a lender or administrative fee on top of the interest rate is to cover the costs associated with loan processing and administration.

Private Lending Costs and Situations

Costs involved in private lending besides interest rates include lender fees, administrative fees, and legal fees.
One situation where taking a second mortgage might be the only option for the borrower is when they face a power of sale situation.
One reason private lending is often used for residential properties is to provide a short-term loan solution for borrowers who cannot qualify for traditional financing.
A factor contributing to the increased cost of private lending is the higher risk associated with private mortgages.

Commercial Lending and Property Appraisal

In commercial lending, the primary basis for approval is the property's value and potential for income generation.
An agent should gather information about the borrower's financial situation, credit score, and loan requirements to make an informed decision.
Lenders consider significant information about the property's value, condition, and location in the appraisal of a property for private mortgages.
Factors that could affect the annual percentage rate (APR) in a private mortgage include the borrower's credit score, loan amount, and repayment terms.

Borrower's Responsibility and Rights

The borrower's responsibility regarding legal fees in a private mortgage is to ensure they understand and agree to the terms.
It is important for the borrower to seek independent legal advice/representation in a private mortgage to ensure their rights are protected.
If early repayment is not mentioned in the commitment letter but only covered in the mortgage documents, the borrower may face penalties or fees for early repayment.
Some borrowers need a private lender because they cannot qualify for traditional financing or require a short-term loan solution.
Private lenders often have higher interest rates and fees because they take on higher risks and provide more flexible loan options.
Typically, a year from now when a private mortgage matures, the borrower will need to repay the loan in full or refinance the loan.
Private mortgages are not always open for repayment, and the borrower should review the loan terms carefully.
A type of property situation that might lead to the need for a private lender is a property renovation or flipping project.

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Description

Explore the legal process of private mortgages and their impact on borrowers, including handling of late payments, extra fees, and default remedies. Understand the costs and responsibilities associated with private lending.