Article by Kum Martin
In private mortgage, the money is not lent by a bank or financial institution. Rather the money is loaned by a private individual or a commercial enterprise. Hence, before opting for private mortgage you must take into consideration the following points.
• A private mortgage should always be documented. Formulate the loan agreement in such a way that it will protect the interests of both the parties, which comprises of the lender and borrower.
• For documentation take the help of a local attorney, your tax preparer or other experienced person who can help you with the process. Some websites also provide information on how to go about making agreements for private mortgages. It is best to refer to these sites and use them as an aid to help you prepare your mortgage agreement.
• Include every detail in the mortgage agreement like when payments are due, What if payments are not received before the specified date, how and where should payments be made, can the borrower repay, will loan be insured and other details pertinent to the loan and the repayment.
• It is always good to secure the loan using an asset worth the loan amount. This should be followed even if you are taking a loan from a family member or a close friend. This way, even if you run into other financial difficulties, the asset or property will have a lien on it and other creditors cannot go after it. Also, by securing the loan, the borrower can sometimes save taxes. Also, you will not be obligated in case you are borrowing money from a friend or family member.
• Try to maintain the property in good condition and if possible, insure the property. If there is any other lien, mortgage or loan on the property, make it clear to the lender before taking loan against that property.
The success of a private mortgage is based on personal relationship and trust between the borrower and the lender. Hence, take care to maintain good relationship with the lender and ensure that the lender will not suffer if the loan is not paid. This will spoil your relationship forever if the lender is a friend or family member.
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