We all work very hard to pay down the principal on our mortgages. In fact, of all the debt obligations that Ontarians owe, paying down housing costs in addition to the monthly mortgage payment is overwhelmingly made the first financial priority.
Homeownership comes with a certain pride. To manage our biggest asset, many of us are finding it increasingly difficult to meet all other debt obligations. Despite the financial squeeze for many, it is still very rare for Ontario homeowners to fall into mortgage arrears. This is made even more impressive given the potential financial constraints of the pandemic that many Ontario homeowners have had to contend with.
The Canadian Bankers Association (CBA) recently released the August, 2021 mortgage default numbers and the actual default numbers, fortunately, remain very low. August housing statistics reflect that of the 2, 108,784 owned Ontario properties only 1,734 properties have fallen into mortgage arrears which represent 0.08% of all owned properties.
What if you are one of the Ontario homeowners that are struggling to meet all housing costs? If you have been finding it difficult to meet all monthly liability payments and cover your mortgage comfortably there are lending solutions in Ontario that will enable you to tap into your existing equity to free up funds in the form of a second mortgage on your home.
What if an Ontario homeowner has bad credit? Even for those Ontario homeowners that may have damaged credit, lending options do exist. There are many well-established and experienced private lenders in Ontario who will be able to offer second mortgage loans despite bad credit by basing mortgage financing on criteria that go beyond credit and income as the main approval criteria.
Types of Lenders in Ontario
Throughout the Province, Ontario homeowners have a wide selection of lenders to help with both refinancing options and the negotiation of second mortgages. In the mortgage sector lenders are further classified into three broad categories and mortgage approval is largely determined by the level of creditworthiness of a borrower:
- A lenders- These lenders are made up of major banks. Banks will be expecting borrowers to have very strong credit and substantial, easy-to-calculate household income. A lenders also routinely put borrowers/homeowners through stringent mortgage stress tests that make it even more challenging to obtain second mortgage financing.
- B Lenders- These lenders are made up of credit unions and trust companies. These lenders will also expect fairly strong credit (generally a credit score of 550 and above). B lenders also prefer significant, straightforward to calculate household income.
C Lenders- If credit is an issue, Private lenders are widely available for the Ontario homeowner. While both A and B lenders will weigh mortgage financing heavily on the amount of income, type of income, and overall creditworthiness, a private lender will be able to look beyond this narrow criterion and base mortgage financing on wider criteria.
What Are Private Lenders Looking for?
A private lender will be assessing the appraised value of your property, degree of existing equity, the current condition of your home, and the location of your property. Ontario private lenders will expect to see more than $70,000 of existing equity to lend out second mortgage financing.
These lenders will assess a current home appraisal very carefully to determine the overall risk of the mortgage loan based on where the property is located and whether there are any ongoing issues to be addressed such as water damage or foundation problems.
Conversely, any updates and renovations will help to determine the eventual loan amount. C lenders will also be assessing the overall Loan-To-Value of your property (LTV). Generally, a private lender will lend up to 75% of the appraised value of your home (75% LTV). For properties that are in outlying areas, the LTV will not be as high (generally up to 65% of the properties appraised value or 65% LTV.)
Rates and Fees Charged by Private Lenders
When the banks are calculating second mortgage financing, they are basing loan criteria primarily on a borrower’s/homeowners strong credit and substantial household income. It is for these core reasons that a bank can offer competitive rates on most second mortgage loan arrangements.
While a private lender will be charging slightly higher mortgage rates and associated fees to cover lending costs, a loan is still possible despite poor credit. To help mitigate risk the rates will reflect this financial reality of the borrower.
Most private lenders will charge between 7% to 12% mortgage rates depending on the unique financial circumstances of the homeowner. Any fees charged to offset the lending costs for the private lender will represent between 3% and 6% of the total cost of the loan.
Ways to Improve your credit for future mortgage loans
Poor credit will not stand in the way of securing second mortgage financing through an Ontario-based private lender. It is always to a homeowner’s advantage to work hard to increase the overall credit score, to further increase different loan options down the mortgage road.
A few key ways to achieve this include:
- Pull a recent credit report and be very familiar with what is the report as well as your current credit score
- Pay all monthly debt obligations as best as you can, even if it is only the minimum payment to avoid a further dip in your credit- rating
- Try to pay off high-interest debt first, such as credit card- debt
- Do not make any major financial changes if you are looking into a second mortgage, such as a job change or taking out a personal loan
Mortgage Broker Store Can Help an Ontario Homeowner with Any Second Mortgage Loan Needs
Mortgage Broker Store can help connect an Ontario homeowner to an appropriate private lender to meet any home equity loan needs. We are continually striving towards finding the best match when looking at your particular mortgage and financing goals.
Working closely with a network of Ontario-based private lenders, we are more than happy to guide you in important decisions that you will be making during the private lending process. We will steer you in the right direction in your mortgage search.
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