Do You Need to Pay Off Legal Fees? Private Mortgages as a Solution

Getting a private loan is an excellent alternative for people looking to pay off legal fees. The interest-only loans from a private lender can be used for everything from divorce proceedings to business disputes.

Alternative lenders use different criteria than more traditional loans. They make sense for homeowners with equity looking for an alternative to what’s offered through banks and credit unions.

Mortgage Broker Store supplies private mortgages and other alternative loan products. They lend based on the equity that you’ve built up and not your credit score.

Why Legal Fees Can Be Financially Overwhelming

Legal fees are charged in different areas, such as the closing costs for mortgages, lawsuits, divorces, or other types of disputes. Lawyers’ rates add to the cost for items like expert witness documentation and court filings.

Legal fees can be challenging to finance because they’re considered non-traditional expenses. Traditional banks hesitate to provide money for them, especially if a potential borrower misses a few income documentation requirements and has a low credit score.

How Private Mortgages Can Be Used to Pay Off Legal Fees

Legal fees can crop up suddenly. A lengthy proceeding can dip into money meant for other purposes, like retirement. That’s especially true when retainer fees and charges for court appearances and consultations start to add up.

That’s one reason a private mortgage is a good choice over a traditional loan. There are other reasons to choose an alternative lender. 

• Private mortgages are quicker to obtain than a more traditional loan. Homeowners can use the equity they’ve built up in their property. Otherwise, they can get bogged down with strict income documentation and an administrative process with a bank.
• Borrowers can consolidate several debts into a private loan that can include legal fees.
• A private lender has fewer restrictions on the money that can be used when compared with a mortgage from a more traditional bank or credit union.

Getting the timing right when you apply for an alternative loan is critical. 

When to Consider a Private Mortgage for Legal Costs

A private mortgage can cover your legal costs in several specific situations.

When You’ve Got Bad Credit 

A private mortgage is specifically geared toward people with bad credit because these lenders focus more on the equity and market value of the property. A traditional loan is much stricter and quite often and will provide a line of credit for legal fees.   

When You’ve Got Good Equity

A private loan is an excellent option when you’ve got enough equity to bypass the more strict requirements of a bank loan. One of the other significant advantages of one of these loans is that you can cover legal costs. 

Private lenders measure equity through the loan-to-value (LTV) ratio. This ratio measures all existing mortgages and the proposed one and includes the property value and equity.

Here’s an example. If a property has a market value of $400,000 and a borrower needs a loan of $300,000, the LTV is 75%.

The formula looks like this:

LTV = Loan Amount / Appraised Value of the Property.

Private lenders usually lend up to 75% LTV.

For Unexpected Legal Costs 

Homeowners who are considering a foreclosure or power of sale want to stop the process. They can get the extra money they need to do just that through a private mortgage. The power of sale has a Redemption Period during which the homeowner can bring the mortgage up to speed or pay it off completely. At this point, paying off the entire mortgage debt includes legal fees incurred by the lender.

There are other advantages to using a private mortgage for legal fees beyond the ones already listed.  

Advantages of Private Mortgages for Legal Fee Payments

Unexpected legal fees can eat into a homeowner’s budget. Title issues and boundary disputes are two examples of issues related to home ownership.

Some of the other advantages of using a private mortgage for the legal fees associated with these problems and others include:

• A private lender considers non-traditional income sources like contract work and money made from sole proprietorships. This is different from the more stringent documentation needed by a bank, such as letters of employment and T4 slips.
• The documentation needed for an alternative lender loan is streamlined. Because they focus on equity, there’s no need for extensive pay stubs and tax returns.

Another bonus is that the credit score isn’t a big focus. 

Eligibility for a Private Mortgage When Dealing with Legal Fees

Eligibility for one of these private loans centers around the equity that you’ve built up in a property. Equity is defined as the amount that’s paid off and is mortgage-free. Remember, a private lender usually will work with an LTV of up to 75%.

These lenders favour properties located in big cities, but they will also consider others in rural environments. The condition of the property is another factor because homes that are well looked after are attractive.

How to Use Home Equity for Legal Fee Payments through Private Mortgages

Keep in mind that private lenders will want a home appraisal to determine a property’s current market value. The equity you have built up is the difference between this market value number and any money you still owe on the mortgage.

Keep in mind that the interest rates on a private mortgage are usually higher than those on a traditional loan. As of September 2024, most of these alternative lenders charge between 8% and 12% interest rates. There are also fees that need to be considered, like broker fees, lender fees, and legal fees. Put together, they can range anywhere from 4% to 8% of the loan’s total amount.

Looking for A Private Lender To Help  With Legal Fees?  

Jonathan and Ron Alphonso offer customized private loan solutions. Reach them at 416-499-2122 or by email at ron@powerofsalesontario.ca. Global News and The Toronto Star quote both of these real estate professionals. Learn more about how they can help secure a private mortgage for legal fees mortgagebrokerstore.com and powerofsalesontario.ca.