The start of 2018 meant, in Canada, the beginning of government-ordered “stress tests” to institutions that wanted to offer home loans. The end result was an increase in the difficulty for most potential borrowers to qualify for a mortgage.
The price boom throughout much in Canada, particularly in such large cities as Toronto and Vancouver, means that more people who want to buy homes may need to buy a less expensive home or come up with a larger down payment to offset the changes. This rule change made the process less achievable for a good number of Canadians. Given that most banks want a down payment of at least 5% (10% if the home price is $500,000 or more), there was already a fairly high hurdle in many people’s paths, but the “stress tests” that the government instituted made this even more difficult.
There is some logic behind the change. After all, one reason behind the collapse in the mortgage industry south of the border was the fact that many borrowers took out more loans than they could not afford. However, there are many people who have the means to make mortgage payments but who cannot satisfy all of the requirements that the banks and mortgage insurers now have. So this is when people start to look for other means beyond the traditional lenders to provide funding for their homes. This is where the different types of lenders – A, B and private – come into consideration. Take a look at our discussion of each type before you sign on the dotted line, because there is some information that you need to know to keep yourself from a contract that could ruin your credit.
These are the traditional lending sources for mortgages – banks, credit unions and other institutions with similar purposes. Their borrowers all have solid credit scores and an income history that is lengthy and more than sufficient. Most people who are thinking about taking a mortgage out start with one of these institutions.
Some of the more common examples of A lenders in Canada include CIBC, BMO, Scotiabank, RBC, National Bank of Canada, TD and Monoline Lenders (MCAP, RMG, Merix to name a few). Because federal regulations apply to these banks, you’ll have to go through the stress tests to qualify. This involves an analysis of your financial situation to see if you could afford to pay the five-year average posted rate of interest or a rate two percentage points above what your bank offers you, whichever number turns out to be higher.
Many credit unions also are considered A lenders, but even though they don’t face federal regulations, they still tend to match the national guidelines, so you could see the same stress tests at those institutions.
Several Canadian banks offer different mortgage options for “B” borrowers – those who cannot qualify under the rules set out by A lenders. However, these can come with higher interest rates, and you will want to look carefully at the terms and conditions to make sure that the deal is one that can fit within your budget.
Private individuals and entities that want to invest in mortgage lending can do so without any government regulation. These type lenders are generally high net worth individuals and businesses that specialize in private lending.
As with a B lender, approval with a private lender can be considerably easier. It is also important, though, to pay attention to the specific terms and conditions so that you get yourself in a manageable situation. Here are some tips for you to consider if you are considering a B loan or a private loan:
- What is the interest rate?
- Is it interest only or principal and interest?
- What is the penalty for failing to make a payment?
- What is the final payoff?
- What is the penalty if you pay ahead – make a larger payment in a particular month?
- What will your actual out-of-pocket cost be each month?
- What else is in the fine print?
Find a solicitor
There is a great deal of fine print in any mortgage application, so you need to make sure that you understand all of the “fine print” – the provisions of your loan. You also need to know the mortgage rules in each province.
Amansad Financial underwrites and prepares conditional approval documents for a large network of high net worth backed private lenders across Canada also referred to as our DLGN (Direct Lender Group Network). We focus on consumers that have the means to pay for a mortgage but can’t make it through the labyrinth of regulations yet. Our mortgages are short-term – from 6 months to 2 years; and sometimes longer. We want our customers to have a plan in place to refinance or satisfy the mortgage in full at the end of the term. Renewals are always available should the conditions work out, but having that sort of plan is ideal. For us, if an application doesn’t fit our network, we also have access to a wide variety of consumer & broker oriented MICs (Mortgage Investment Corporations) that underwrite in-house that can also assist.
If you are in need of a private lender, it is very likely that Amansad Financial can assist and help you bridge yourself from a tough situation to a much better one.