All parties, both buyer and note holder profit from private notesFor all of the parties sitting around the settlement table in a real estate sale, private mortgages are one of the most effective financing vehicles for facilitating the transaction and delivering substantial benefits for all those involved.

 Due to The Great Recession, it is very difficult to obtain a mortgage from a traditional lender, particularly for an investment property or vacation home. In addition, there are now limits on the number of properties with mortgages that lenders will allow for an individual. Obtaining a private mortgage, a loan from an individual or an investment group rather than a bank or broker to finance the purchase of a property, will permit the deal to go through for the buyer in circumstances where it might not otherwise.

In addition to being approved, private mortgages also develop in a much more expeditious manner than a traditional loan from a bank or broker. There is no loan committee that meets once a week for this type of equity lending. An appraisal might not be needed for the property, particularly if it is fully rented or in a well-known, desirable area. The paperwork is greatly reduced, as is the turnaround time of the entire process for securing a mortgage.

For the private mortgage lender, this market allows for far greater investment returns with a high level of security. The present low interest rate environment which is expected to endure for years has resulted in paltry returns for fixed income investments such as bonds and certificates of deposit. While the stock market is at a high, there are tremendous concerns that a massive asset bubble is waiting to burst due to the high level of unemployment in the United States, along with the low level of economic growth.

private mortgage noteBy financing a private mortgage, the lender earns a much higher rate of return than that from a certificate of deposit or a bond. Greater income is also generated from the transaction based on the points charged. As an example, if a $300,000.00 mortgage was made with three points paid by the borrower, the lender would bank $9000.00 in fees. Those fees are earned at the settlement table, before the first mortgage payment is every made.

This type of equity lending also results in a position in a piece of property that will deliver huge returns with secure terms for those making the private mortgage. While the terms of a mortgage are negotiated between the lender and the borrower, the way a 30-year mortgage is traditionally structured does not result in any equity being reduced until around year 11. For the lender, that results in a tremendous equity position well into the life of the mortgage.

Private mortgages offer tremendous benefits to both the lender and borrower in the purchases of real estate. It is equity lending for properties that moves the quickest, far faster than loans from a lending institution or a mortgage broker. The more times a buyer borrows from a private mortgage party, the easier the future loans become as established clients are always favored. All parties profit more from private mortgage lending for real estate.

by, Jonathan Yates: EquityBuild News Contributor