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Understanding the difference between the bank, the everyday broker, and an Alternative Mortgage Lending Broker Specialist
With the real estate market returning to a place closer to its prosperity before the downturn of the housing market in 2008 and 2009, it is more important than ever to have access to as many financing options as possible. There was a time when banks provided the vast majority of the financing to home buyers, but that is simply no longer the case. The flood of regulations that have come down upon the banking industry in Canada as a result of that tumult has led to a large number of potential home purchasers who have the wherewithal to afford a home loan, but who cannot make it through the maze of requirements that the banks have in place.
Here’s how it works: banks provide loans with the lowest interest on the real estate market. You can arrange for mortgages that are open (no pre-payment penalty), closed (pre-payment penalty), fixed rate, adjustable, at terms ranging from one to ten years. Because most home loans are amortized over periods longer than the term of the loan (at least the initial loan), you face having to renew your loan at the end of its term. Even if you go with the lowest rate possible, which comes with a closed loan, you do so knowing that you can’t pay the loan off early without a substantial penalty, and the bank gets the chance at a higher rate once you hit renewal. Given that the bank requires you to have a set credit score, an ironclad record of income and a hefty down payment (20 percent if you want to avoid paying mortgage insurance when you take out a high ratio loan), the bank certainly seems to have an edge. This is why brokers and alternative lending specialists have emerged to help the home buyer.
Mortgage brokers serve as a sort of index for other lending sources. As a home buyer, you likely don’t have the time to research all of the traditional lending options in your area, and you likely lack the connections to some of the less-than-prime alternatives in Canada. Brokers connect their clients with a variety of lending options, whereas banks try to sell home buyers loan products for which those buyers qualify. Going through a broker can be a quicker process and bring you a loan with a lower rate. Both of those are positive outcomes, but even brokers may not have access to private sources of funding, nontraditional lenders or alternative solutions for the funding process.
Amansad Financial has been one of the groundbreaking alternative lending brokers since opening. There is little difference between our mode of operation and that of brokers, although we focus more on alternative financing methods, including private financing. Your average broker likely has a ratio of traditional to alternative lending solutions of 9:1, while Amansad Financial’s ratio is closer to 1:9.
One of the most popular alternative forms of lending is the private mortgage. Given the fact that investing in the stock market still involves a high degree of risk, and that opening savings accounts and purchasing certificates of deposit only yield interest rates that just fail to keep up with inflation, many investors are looking for a way to spend their money that has less risk than the stock market but a higher reward than investments backed by the government. The private loan is becoming increasingly popular, as lenders receive a higher interest rate this way than the banks do — you simply represent a greater risk than people who qualify through traditional channels. Also, private lenders tend to want their money back within a couple of years, rather than setting up a 25-year schedule of amortization.
We connect individuals looking to purchase homes or commercial properties with private individuals or companies that look to profit from private loans. As a buyer, you would receive assistance from your own personal alternative financing consultant, and we would go over your particular financial situation, as well as the property you want to purchase. We would match you with multiple lending options and make a recommendation as to the best deal for you. To get the process up and running, call one of our professionals today. We look forward to helping you get the property of your dreams. Call us today!