Private Lenders and the STRESS Test

The Stress Test is in full force and that means that getting a mortgage from a bank or a non-bank lender has become a bit more challenging.  With the recent introduction of new mortgage rules, lenders have had to tighten their qualifying guidelines.  Mortgage brokers say the borrower rejection rate from large banks and traditional mortgage lenders has gone up as much as 20 percent since Canada’s banking regulator imposed a new stress test for home buyers who don’t need mortgage insurance.

The new mortgage rules have also impacted those who want to refinance their mortgage loan. And at renewal time, if you want to increase your existing loan, change your amortization or shop for a better rate, the new qualifying rules may have an impact as well.

Alternative lenders are seeing an increase in business as mortgage brokers are increasingly directing home buyers towards borrowing options that are beyond the reach of OSFI the Office of the Superintendent of Financial Institutions. 

Banks or non-bank mortgage lenders are not the only options for a mortgage. In addition to some credit unions that have not changed all their lending guidelines, there is now a growing group of alternative or private lenders who are flexible and open to reviewing a variety of situations. While many home buyers and property investors consider private lenders a last resort, the new mortgage rules have created an opportunity for a variety of specialized lenders to enter the market.

Private lending is becoming an excellent alternative for some. Many private lenders put more weight on the equity in a property, rather than on the work you do or on the credit challenges you may have.  However, the downside can be higher interest rates and lending fees.

Smaller institutional lenders, however, are offering specialized lending with affordable interest rates, reasonable lending fees and flexible underwriting. Some of the benefits of specialized lending are:

• Quick closings: The key to a quick close is having your financing set up quickly -- specialized lending can make that happen.

• Terms of the loan: These loans are for short periods of time, usually no more than one to three years, which gives you time to get into a position to qualify with a conforming lender.

• Great for investors: Because specialized lenders have flexibility, they will look at those fixer-upper rental properties with a keen eye and may fund both the purchase and the home improvements.  Also, there is more flexibility with regard to the number of properties allowed in an investment portfolio.

• Diverse repayment options: This is especially helpful for entrepreneurs. Payments can be structured more creatively and may include interest-only payments, prepaid interest, and balloon payments at the end of the term or on closing of a sale.

• Construction financing: Bank construction financing can be riddled with red tape. Private lending may get the borrower more money, and quicker access to construction draws, which in the end, could save time and money when building a home.

If you are considering purchasing a property or looking to upgrade and need guidance, give Assist 2 Sell a call. We work with a variety of mortgage brokers who can help you achieve your goals.

CBC News - http://www.cbc.ca/news/business/mortgage-stress-test-1.4519972

TMG The Mortgage Group- Feb 9, 2018