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Thinking of an alternative lender? What it could mean for your mortgage
November 2, 2023 | Posted by: Angela Robinson
Canadians are increasingly turning to private lenders for mortgages due to economic conditions that make it harder to qualify for traditional loans, especially with high interest rates. The Bank of Canada has raised its key rate to 4.5%, aimed at controlling inflation. Private mortgages are short-term solutions for those who can't qualify for traditional ones, typically lasting one to two years.
Between 2015 and 2020, alternative lenders grew rapidly in the Canadian mortgage industry, increasing their portfolio from $9 billion to $15 billion. In the third quarter of 2022, 33% of borrowers renewed with alternative lenders, showing a growing trend. Borrowers prefer private lenders for more flexible terms, an easier application process, and suitability for self-employed or irregular income individuals.
While private mortgages are easier to obtain, they often come with higher interest rates, lender fees, and additional conditions or restrictions. These lenders have lower qualifying standards, making them attractive for those with inconsistent credit, debt, or employment.
However, borrowers should be cautious, as taking a mortgage from an alternative lender can have significant differences and potentially higher costs compared to traditional lenders. Having a proper exit strategy is recommended, such as refinancing with a traditional lender or selling the property, as private mortgages can involve extended periods of higher interest rates.
Around 80% of foreclosures in Ontario involve properties with alternative lenders, and having an exit strategy is crucial to avoid unexpected financial difficulties. Private mortgages can be a short-term solution, but planning for a transition to a traditional lender is advisable.
Are private mortgages right for you? Contact us today to get advice tailored to you at 780 701 3888 or firstname.lastname@example.org
Full article: https://www.ctvnews.ca/business/thinking-of-an-alternative-lender-what-it-could-mean-for-your-mortgage-1.6312531