The Finance Blogger

Our previous reader asked a number of questions about whether they should take advantage of an offer from a family member who is offering them a private mortgage loan.

There are lots of advantages about taking advantage of a private loan or private mortgage. However there are also lots of disadvantages as well. It really depends on the individuals that are involved and whether there is a desire to make it work, whether both parties are being honest with each other and whether both parties have the same understanding about payments, terms and interest rates. Since the loan is private, many people do not document all of the assumptions and agreements very well and this is where the misunderstandings start, which can lead to bad family relations in the short term and sometimes in the long term as well.

We have compiled a few of the things that are must do’s when agreeing to a family loan or a private mortgage loan.  The more you follow these guidelines, the less chance there will be that  you will run into trouble, however there always seems to be a way to make a mess with things and consumers seem to be adept at this.

Private Mortgage Loans – Our list:

• Write down your agreement and both parties should sign all pages
• Copies should be provided to both parties
• Specify  the principal, the  term, the interest rate charged and the monthly payments
• Specify any early payment options that you agree to
• Clarify any late payment fees and charges, if any
• Specify any opportunity for the lender to call the loan early
• Cover early closure or repayment of the mortgage agreements
• If you decide to ask for collateral, you will need to register the mortgage against the home or car or whatever you agree to
• Specify how the payments will be handled, check, direct deposit etc

While all of the above may seem onerous, if you are able to discuss and agree to all of these items and write them down, there will be far less chance of running into difficulty with regards to the agreement. If there is a disagreement, at least you are starting from a common agreed to document. This is really just basic communications taking place and avoiding  misunderstandings that could occur.

Changing Circumstances

Often circumstances change for either the lender or the person the money is being loaned to. Sometimes people lose jobs and cannot make payments. Sometimes lenders have situations they must deal with and need the money returned to them ahead of schedule. These situations always put unneeded stress on families and private lenders. Which can create bad feelings if not handled properly in a business like manner.

Providing advance notice and negotiating changes to a private mortgage loan is possible provided that both parties agree. Give as much advance notice as possible and be business like in your approach. Adding emotional issues to these types of discussions is only going to cause more stress. Also possible discord between parties, whether they are family members or private unrelated individuals. There must be a willingness to make it work on both sides when a private mortgage loan is negotiated.

If you have had to deal with private mortgage loans and would like to provide your experience to help our readers learn to handle these situations, please feel free to leave your comments.

We are sure they will appreciate the help.

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