Three Types of Lenders Available in Ontario Explained

Three Types of Lenders Available in Ontario Explained

With mortgage interest rates at historically low levels coupled with soaring house prices and record-breaking house sales in Ontario, more and more Ontario homeowners are looking to take advantage of such a lucrative housing market. 

Many existing homeowners are also looking to take out additional mortgages on their properties for a host of reasons which include investing in rental or investment properties, paying off existing debt, refinancing principal mortgages or home renovation homes to get their home the best bank for the buck when looking to resale in such a robust real estate sector.

According to the figures recently released by the Ontario Real Estate Association (OREA), the average price of a single-dwelling property in Ontario has increased by 13.5% from this time last year and January 2021 saw house sales in Ontario hit a new sales record.

According to the Ontario Real Estate Association, residential sales activity reported through the Multiple Listing Service (MLS) in Ontario numbered 13, 885 units in January of this year which represents an increase of 29.5% when compared to house sales the same time last year. 

This represents a new sales record for January in the Province. The average price of resale residential homes sold in Ontario during January 2021 was a record $ 796,884 rising 26.7% from January 2020.

With such favorable market conditions and attractive mortgage interest rates now is a great time to apply for mortgage financing to reach your financial goals. Like many things in life, timing is everything. This principle holds for the Ontario housing sector. Up until the last few weeks, interest rates have remained extremely low both on fixed five-year mortgages and variable rate mortgages.

Factors have however converged lately that have pushed up the yield on five-year Government of Canada Bonds. A week ago, according to the President of Ratehub, the lowest rate that could be found on a fixed mortgage rate was 1.39%. This past week saw this lowest number jump up to 1.54%. Thankfully this is still a minimal increase and translates to only between

Despite a slight increase in rates associated with fixed mortgages, it is clear that many Ontarians are taking advantage of a golden time in real estate and taking out mortgage financing. Statistics in early February reported by Statistics Canada reveal that household mortgage debt increased by 7.4% by the end of 2020 compared to the same time in 2019 which increased the total mortgage debt held by Canadians to $1.66 trillion.

What Lenders are Available for Ontario Homeowners?

In Ontario, there exists a wide range of potential lenders when it comes to securing mortgage loans. Many think of the banks (classified in the industry as A lenders) as the only alternative when seeking mortgage financing. While the banks can offer the best interest rates, they tend to overwhelmingly finance amortized long-term ( 25-30 year) first mortgages (principal mortgages). These loans are deemed low-risk mortgage loans by the banks. 

Other types of lenders operate in Ontario. These lenders are classified as B and C lenders. Examples of B lenders are credit unions and trust companies. C lenders represent private lenders, both independent and mortgage brokerages with lenders specializing in private lending.

  • A Lenders- Banks and large lenders. These lenders tend to require quite stringent criteria to qualify for a mortgage loan. Based on recent tightened stress tests imposed by the bank’s criteria include near-perfect credit scores and preference is given to full-time salaried employment. Banks can offer very competitive interest rates. The lowest rates fall under 0.2% on some mortgage arrangements. Fees tend to be lower than other lenders. The bulk of the mortgage loans offered by the banks represent amortized  long-term 25 to 30-year mortgage loans (principle mortgages) 
  • B Lenders– Credit Unions and Trust Companies. These lenders may not require such high credit scores but still prefer very solid credit standing along with traditional salaried-based employment. Credit scores should still be not below 550 and if self-employed or contracted worker mortgage loans are more difficult to obtain from these lenders.
  • C Lenders– These lenders are private lenders that may lend individually, as a group of lenders or mortgage brokers that specialize in private lending of mortgage loans. Credit can be overlooked, and these lenders will rely on current appraisals of your property and its location. Due to damaged credit, interest rates associated with private mortgage loans are higher than those offered by the banks. Interest rates on most types of mortgage loans are between 7% to 12% with fees ranging from between 4% to 6% of the total cost of the loan. 

Private lenders will assess the Loan to Value (LTV) on your current property and will assess LTV based on a recent appraisal of your property. Most Private lenders will lend out up to 75% LTV (which represents 75% of the appraised value of your home). Private lenders will also look to 25% existing equity in your home to leverage the loan against.

As more and more Ontario homeowners are looking for mortgage financing either for their principal property or for another investment/rental property, Ontario-based lenders are offering different mortgage solutions.

For those Ontario homeowners that face credit difficulties or have a monthly income that may be hard to calculate, private lenders (C lenders) will be able to approve loans quickly and the process is straightforward. Private lenders will require a recent appraisal of your home, a list of current assets, all sources of monthly income, and an estimate of the existing equity in your home to process a private mortgage loan. 

Let Mortgage Broker Store Help Secure a Private Mortgage Loan 

Mortgage Broker Store is well experienced in the specifics of applying for a private mortgage loan and has access to a wide network of Ontario-based private lenders who will be able to negotiate the terms of a private mortgage loan that best suit your financial circumstances. Don’t hesitate to contact us for any concerns that you may have and we will be able to connect to a private lender in your area. Take advantage of the equity in your home and pay for what is needed today and any financial obligations that may lie ahead.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.