There are some things in life that always seem to go together. Fish and chips, Batman and Robin, meat pie and sauce, and mortgages and banks. It is a common misconception that going to a bank or financial institution is the only way to get a mortgage.
In fact, there are other, equally regulated mortgage solutions, the most common of which is private lending. Private lending is in fact older than the financial institution model we know today.
Private lending is also known as private mortgages or solicitor funding because it was previously common for solicitors to manage investment funds, connecting lenders and borrowers. This was before ASIC stepped in as the industry regulator for private lending, including mortgages. Now this type of lending falls under the National Consumer Credit Protection Act 2009.
What Is A Private Mortgage?
Private mortgages are a way for home buyers to borrow the funds they need without going through a bank. The funds are provided by an individual like a friend or family member, private business, trust or another lender.
Provided the lender meets ASIC’s regulation requirements for credit activity, the practice is completely above board and regulated as a normal mortgage would be. However, vendor’s mortgages – loans obtained by banks – are regulated by APRA, the Australian Prudential Regulation Authority.
Private mortgages can be a win-win for buyer and lender, provided they are executed correctly.
Why choose private lending?
For borrowers, private lending through a friend or family member can mean a lower interest rate than they might otherwise receive from a bank. On the flip side, lenders can benefit from an interest rate higher than a traditional savings account. An interest rate somewhere in the middle of market savings rates and current mortgage interest rates can benefit both sides.
But perhaps the #1 reason people consider private mortgages is because they are unable to secure a financial institution loan. This is especially common in regional areas where banks are hesitant to provide large loans, or for people in a financial situation that makes them ineligible for a vendor’s mortgage.
Of course, the risks for lenders are implied: the lender should be certain of the borrower’s risk profile, and comfortable that they will be able to meet repayments. When private lending agreements break down it is not only financially perilous, but often damaging for personal or family relations.
One of the biggest considerations when pursuing private lending is how to structure the purchase agreement. This is where C&R Settlements can help.
How Can C&R Settlements Help Me with A Private Mortgage?
When a buyer goes to a bank or financial institution for a mortgage – known as a “vendor’s mortgage” – the property is transferred into the buyer’s name and they make regular repayments. Most people are familiar with this process.
A Terms Contract, on the other hand, means the lender retains ownership of the property until the buyer has fully paid off the loan. Kind of like a rent-to-own agreement, but more complicated.
Then there are private contracts which entail property changing hands without involving a real estate agent.
In all these cases, a significant amount of regulatory paperwork, not to mention legal knowledge, is required to ensure a smooth and secure transaction. As registered conveyancers and qualified lawyers, C&R Settlements help either buyers or sellers to complete the transaction with all the legal obligations satisfied. Moreover, our experienced team works with clients on transactions that protect their investment, either buying or lending, and avoid financial risk wherever possible.
If you are considering entering into a private mortgage agreement (from either side of the fence) we encourage you to get in touch for an initial consultation. Going it alone is risky and potentially horrendously expensive, which is where the experience of C&R Settlements is essential.