Real Estate

Second mortgage - urgent help needed

  • Last Updated:
  • Aug 6th, 2018 9:52 pm
[OP]
Newbie
Jul 30, 2018
4 posts
1 upvote

Second mortgage - urgent help needed

Hey everyone I'm new to the forum and need some opinions from those more experienced then myself. I'm in the unfortunate situation of needing a second mortgage. My credit is stretched almost to the limit and credit score is on the low size, around 650. Last year my original 5 year mortgage with Scotia was due for renewal. At that time there were 3 of us (sisters) on the mortgage. The reason we didn't simply renew was because we all wanted to go our own ways. I was able to reach an agreement on compensation to my sisters and was able to keep the house, however since the dynamic of the mortgage was changing, I had to re-apply on my own. Long story short, I was unable to secure a mortgage with an A lender and ended up needing a private lender and even that was a hassle to secure. Now onto the second mortgage I'm in the process of shopping around for. Firstly if anyone has any lender recommendations, I'd very much appreciate it. I'm looking for $50,000 to $60,000. I did reach out to a private lender and after gathering the required info from me, here's what they presented me with.

Mortgage Terms: Amount of Mortgage $57,900.00 - Interest Rate 9.75%

Interest Commences - Mortgage Interest Commencement

First Payment Due - Monthly Payments $558.00

Amortization 19.07 years - Term 12 months

--------------------------------------------------------------------------------

Assignment of Rent: No - Hold back required: No

--------------------------------------------------------------------------------

Mortgage Proceed Disbursements: Legal Fees and Disbursements (estimated): $1,900.00

Application Fee: $295.00

Brokerage Fee: $2,970.00

Lender Fee: $2,735.00

Appraisal Fee 0.00 (to be paid by applicant)

Approximate Net Proceeds Available: $50,000.00

I responded and asked for clarification on some of the fee's and this is the response I received...

"The $1,900.00 is for my lawyer who does all the documentation and funding, you will need a lawyer of your choice or I can suggest one who will give Independent Legal Advice on the documents and there is an extra charge for that of appr. $450.00 which I am not allowed to include in any of the costs but can pay it out of the funding to you. The $2,970.00 is our brokerage fee and $2,735.00 is the Lender (company) fee that puts up the funds".

"To proceed we would require an appraisal, I would order it and they would call you for the appointment and payment Approx. $450.00. at times we can include the appraisal but because we are getting close to the maximum Loan to Value and want to keep the amount under 70% with the 9.5% interest rate we need the appraisal completed first".

My biggest concern is with the "Mortgage Proceed Disbursements: Legal Fees and Disbursements (estimated): $1,900.00". If I understand that term correctly, it's a fee I have to pay but wouldn't it be to my lawyer directly. They have me paying this for their lawyer. Seems odd to me.

Any and all help and suggestions are welcome. Thank you.
50 replies
Deal Addict
Jan 13, 2014
1645 posts
567 upvotes
Calgary
Wow 9.75%. Which part of the country are you in?
Deal Addict
Jan 1, 2017
1141 posts
972 upvotes
$8k in fees and close to 10% annual rate? Sounds like you are getting ripped off! Do you have any equity in the house? Can you get a HELOC? You can still get a HELOC through a bank or credit union despite having a mortgage with someone else. What about line of credit from a bank?

How long do you need the money for? What is your goal?

Are you being stretched because you can’t really afford the house by yourself? Find a roomie or re-evaluate your financial situation and sell it.
Deal Addict
Jan 1, 2017
1141 posts
972 upvotes
Oh and you will pay $66k in interest if you repay it over the 19 years
Deal Guru
User avatar
Mar 9, 2007
13379 posts
8345 upvotes
Think of the Childre…
Yeeeeeeeeeeeeeeeeeeeeeeeeeeeeeooooowsers!!!

WOULD SOMEBODY THINK OF THE CHILDREN!!!
Deal Guru
User avatar
Mar 23, 2008
11349 posts
7655 upvotes
Edmonton
I would reach directly to some of the mortgage brokers in here. Or talk directly to your lawyer to review who's getting what money.

But I'm with the others on this... You're paying a whole lotta money to someone else. $8000 on a 50k mortgage is 16% right there. Plus almost 10% per year. It may be a better idea to look at whether this is really feasible to continue. Yeah, you're getting an extra $50k in your account now, but how long is that going to last if you're bleeding money faster than you're making it? Based on your post, you were already "stretched thin", and now you've got an extra $560/month in payments.

They have you paying for their lawyer because you don't have many other options, I would guess. It's costs that they're incurring to lend you money, and they're making sure they've got those covered before you get your money because they feel you're high risk.

C
Deal Addict
Jul 29, 2006
4068 posts
881 upvotes
sorry OP but this is financial suicide. You're better off selling the property and living your life without this financial burden.
Jr. Member
Sep 14, 2004
103 posts
132 upvotes
That sounds about the right rates for private short term lending, but those fees are killer!.. P2P lending are not intended to carry for longer than few months upto 1 year.. If the OP has intention to keep this ongoing beyond that, she better have a damn good exit strategy to pay it out, otherwise, you mind as well just sign your deed over to the private lender now.

I would shop around a bit more with other private lenders, I think these fees are clear indicator that they are more like D lenders who lends to people with very bad credit. I think if you start talking to independent mortgage brokers, they probably have better lenders available.
Deal Fanatic
Jul 3, 2011
5768 posts
2925 upvotes
Thornhill
$1,900 in legal fees to set up a mortgage is highway robbery.

It's worth noting his language to you about hiring your own lawyer for independent legal advice, that's because the buyer's attorney is the one who handles the mortgage documents on behalf of the lender and why the $1,900 is charged back to you. Independent legal advice will be limited to just that - advice.

I'm thinking you're going to be using these funds toward other debt which is not your current mortgage, if that's true, I'm with the others who say you're doing yourself no favours - it might be best to sell the property and hope to at least come out square.
Jr. Member
Nov 5, 2017
161 posts
142 upvotes
You are not going to pay 60K or 70K right. Once you have second mortgage approved, you can use your line of credit to pay them off and save interest, I look at it like saving 60K on the long run. Few thousand dollars is ok in Fees, Even if you property appreciate by 1% you will recover all the cost. Besides property always goes up in the long run. This is good time to buy, If i were you I would also look into another property may be third mortgage this time, No Gain without Pain my friend.
Deal Addict
Jan 1, 2017
1141 posts
972 upvotes
Smart123 wrote: You are not going to pay 60K or 70K right. Once you have second mortgage approved, you can use your line of credit to pay them off and save interest, I look at it like saving 60K on the long run. Few thousand dollars is ok in Fees, Even if you property appreciate by 1% you will recover all the cost. Besides property always goes up in the long run. This is good time to buy, If i were you I would also look into another property may be third mortgage this time, No Gain without Pain my friend.
Hahaha! I hope you are being sarcastic! Worst advice ever!
Jr. Member
Nov 5, 2017
161 posts
142 upvotes
Looks like you never went to B lender. Few thousand is very common in fees. Market is stabilizing now with current inflation, its reasonable to expect 4% gain
Deal Addict
Jan 15, 2017
3437 posts
2782 upvotes
Private mortgage details will vary from individual to individual. So will the fees. The feels quoted above are quite high for such a small request. Just to provide some context - a mortgage agent will generally make between 0.80% - 1.20% commission on a 5 year mortgage term. On $50,000, that is between $400 - $600. On a 12 month term, the amount is considerably less. So when the broker quoted you a brokerage fee of $2970, that is HUGE. That is just shy of 6%.

Many private mortgages are also set up to be paid out quickly. Many are interest only payments, meant to buy you time to correct your finances so that your 1st mortgage can be refinanced to pay off the private mortgages. Every one getting a private mortgage should plan an exit strategy - how will they pay it off. Otherwise, the private lender generally charges fees to renew the mortgage and the mortgage ends up costing you a lot more and you simply cannot get out of it.

If you are determined that you need a second private mortgage, start calling around to other mortgage brokers to see what they can offer. You will be amazed at the different rates and fees that are available.
Deal Addict
Jul 3, 2007
2665 posts
2801 upvotes
Toronto
cucumbus wrote: Hey everyone I'm new to the forum and need some opinions from those more experienced then myself. I'm in the unfortunate situation of needing a second mortgage. My credit is stretched almost to the limit and credit score is on the low size, around 650. Last year my original 5 year mortgage with Scotia was due for renewal. At that time there were 3 of us (sisters) on the mortgage. The reason we didn't simply renew was because we all wanted to go our own ways. I was able to reach an agreement on compensation to my sisters and was able to keep the house, however since the dynamic of the mortgage was changing, I had to re-apply on my own. Long story short, I was unable to secure a mortgage with an A lender and ended up needing a private lender and even that was a hassle to secure. Now onto the second mortgage I'm in the process of shopping around for. Firstly if anyone has any lender recommendations, I'd very much appreciate it. I'm looking for $50,000 to $60,000. I did reach out to a private lender and after gathering the required info from me, here's what they presented me with.

Mortgage Terms: Amount of Mortgage $57,900.00 - Interest Rate 9.75%

Interest Commences - Mortgage Interest Commencement

First Payment Due - Monthly Payments $558.00

Amortization 19.07 years - Term 12 months

--------------------------------------------------------------------------------

Assignment of Rent: No - Hold back required: No

--------------------------------------------------------------------------------

Mortgage Proceed Disbursements: Legal Fees and Disbursements (estimated): $1,900.00

Application Fee: $295.00

Brokerage Fee: $2,970.00

Lender Fee: $2,735.00

Appraisal Fee 0.00 (to be paid by applicant)

Approximate Net Proceeds Available: $50,000.00

I responded and asked for clarification on some of the fee's and this is the response I received...

"The $1,900.00 is for my lawyer who does all the documentation and funding, you will need a lawyer of your choice or I can suggest one who will give Independent Legal Advice on the documents and there is an extra charge for that of appr. $450.00 which I am not allowed to include in any of the costs but can pay it out of the funding to you. The $2,970.00 is our brokerage fee and $2,735.00 is the Lender (company) fee that puts up the funds".

"To proceed we would require an appraisal, I would order it and they would call you for the appointment and payment Approx. $450.00. at times we can include the appraisal but because we are getting close to the maximum Loan to Value and want to keep the amount under 70% with the 9.5% interest rate we need the appraisal completed first".

My biggest concern is with the "Mortgage Proceed Disbursements: Legal Fees and Disbursements (estimated): $1,900.00". If I understand that term correctly, it's a fee I have to pay but wouldn't it be to my lawyer directly. They have me paying this for their lawyer. Seems odd to me.

Any and all help and suggestions are welcome. Thank you.
its a fair deal overall and borrowers always pay lenders legal fees on private deals.....

this isnt a bank mortgage ;)
Deal Addict
Jul 3, 2007
2665 posts
2801 upvotes
Toronto
skeet50 wrote: Private mortgage details will vary from individual to individual. So will the fees. The feels quoted above are quite high for such a small request. Just to provide some context - a mortgage agent will generally make between 0.80% - 1.20% commission on a 5 year mortgage term. On $50,000, that is between $400 - $600. On a 12 month term, the amount is considerably less. So when the broker quoted you a brokerage fee of $2970, that is HUGE. That is just shy of 6%.

Many private mortgages are also set up to be paid out quickly. Many are interest only payments, meant to buy you time to correct your finances so that your 1st mortgage can be refinanced to pay off the private mortgages. Every one getting a private mortgage should plan an exit strategy - how will they pay it off. Otherwise, the private lender generally charges fees to renew the mortgage and the mortgage ends up costing you a lot more and you simply cannot get out of it.

If you are determined that you need a second private mortgage, start calling around to other mortgage brokers to see what they can offer. You will be amazed at the different rates and fees that are available.
you cant compare what brokers get paid with finders fees from a bank to private mortgages ....totally different ball game

a broker wont bother getting out of bed to make $500 on a $50,000 2nd mortgage when its just as much or even more work than a $500,000 1st mortgage with a bank.....where
they can make $5000 gross commissions...

private deals average 6-10% just for the lender / broker fee side , thats besides the actual rate , APR is usually around 15% - 20% for 1 year .....

OP is being charged fair fees and the rate is actually quite good.... most lenders would want 11 or 12%


if you want to read some interesting legal cases about private mortgage borrowers going bust, this guy has some...

Last edited by joepipe on Jul 31st, 2018 4:37 pm, edited 1 time in total.

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