In the Canadian mortgage market, there are three major classifications of mortgage lenders: Traditional, Sub-Prime & Private.
You may already know about traditional sources. These would be your chartered banks (Scotia, TD Bank, RBC,etc..). There are also large virtual mortgage houses such as First National, MCAP, Streetscapital etc. These lenders spotlight primarily on what is called in the industry, the prime market. These lenders focus on borrowers who have good jobs/credit and are purchasing homes within the traditional guidelines.
For borrowers that cannot qualify under the “A” guidelines, the next option is to try to fit within sub-prime lender’s guidelines better known as “B” lenders.
During the past year, lenders have tightened up their credit requirements and interest rates. Sub-Prime lenders do not provide high-ratio mortgages (i.e., your down payment must be 20% or more of the purchase price of the home). These lenders charge a premium between 1-2 percent over traditional interest rates and usually do a much shorter term.
Unfortunately, prime lenders are very strict when it comes to borrowers that have poor credit. In many cases it’s a catch 22. Debts and minimum monthly payments are too high compared to income so month after month payments are neglected or missed. How can anyone payoff debts if you cannot refinance due to poor credit history? Many borrowers are facing a situation that unless they can refinance their house and use the equity to pay off their debt, they will never be able to afford catching up.
If your application still doesn’t fit within sub-prime lender (B) guidelines, a private mortgage is another option or MIC -Mortgage Investment Corporation. Private lenders will generally require at least 25% equity or down payment and a readily marketable property. For remote or rural properties, many private lenders will often require approximately 50% equity.
Private lenders could be anybody. Usually, they are people with extra money to invest. To them, investing in mortgages allows them to achieve a higher return on investment (ROI) compared with bank savings accounts or GICs. The lender could also be a Mortgage Investment Corporation (MIC). This is a corporation established solely to invest in mortgages.
Learning which one is right for you is as simple as having a dedicated mortgage specialist on your side.
Let me help you. Feel free to get in touch with ME anytime and I’ll be happy to get you on your way to a mortgage/loan that’s right for you and your loved ones.