The real estate market in Ontario has baffled real estate professionals for close to two years now. While the Province has been in the grips of a global pandemic and by all measures the housing market should have taken a hit, instead we are seeing appreciation numbers not seen for years prior to Covid-19.
Both housing sales and the value of homes skyrocketed during 2020 and well into 2021. Some areas in the GTA have seen year-over-year increases of close to 31%. These numbers are unprecedented even in life prior to Covid-19.
With many potential homeowners willing to pay well over the asking price on properties and bidding wars the norm rather than the exception, Ontario real estate continues to be in demand and a hot ticket.
The latest Toronto Housing numbers compiled by the September Toronto Housing Report have the average 3 bedroom single detached dwelling at $1,022,500 with an impressive 4,337 new listings over the last month.
What if you want to invest in the Ontario housing market and have poor credit? While the banks may be offering mortgages to those with strong credit and substantial household income, those borrowers/homeowners that want to take out a mortgage or apply for a second mortgage on their current home may run into some resistance.
Fortunately, throughout Ontario there exist very established and experienced private lenders who will be able to negotiate terms on a private mortgage option when the banks or credit unions/trust companies may have said no.
When to take out a private mortgage
In Ontario, the mortgage industry has classified the many lending options into three broad categories defined primarily by borrowers/homeowners’ creditworthiness and type of income as well as overall household debt level.
- A lenders– These lenders are the banks. Banks will routinely put borrowers through mortgage stress tests to determine their ability to carry a mortgage with an increase to their current mortgage rate. These lenders will also demand strong credit scores and substantial household income.
- B lenders– These lenders are Ontario credit unions and trust companies. Although less stringent than the banks when it comes to mortgage criteria, these lenders will still expect a credit score of at least 600 and prefer easy-to-calculate, substantial household income, and a low debt ratio.
- C lenders– Private lenders are referred to as C lenders in the mortgage industry. If a homeowner has poor credit and a higher household debt level or non-traditional household income such as freelance or self-employed, these lenders will be able to negotiate private mortgage financing.
There are compelling reasons to approach a private lender. If the banks are not an option based on the mortgage criteria that they demand, private mortgage financing may be a very good option for some homeowners looking to take out a second mortgage on their home. Let’s look at some of these top reasons to look into private mortgage financing:
Lenient Approval Criteria– A private lender will be able to look beyond a homeowner’s current credit score and degree/type of household income. They are able to do this because a private lender will be assessing the property when determining the degree of private mortgage financing. He/she will be assessing the degree of equity in your home (you will need to have more than $70,000 in equity), calculate the Loan-to-Value (LTV), and the appraised value of your property as well as the location and current state of your property.
Faster Mortgage Processing- While the banks may take weeks to negotiate mortgage financing, for those with imminent financial situations to solve such as those facing a power of sale, foreclosure, tax debt, or other pressing financial concerns, private mortgage loans can be approved in a day or two and completed in as little as a week or two.
Flexible Mortgage Terms– Bank mortgage contracts tend to be quite stringent with set terms that are not negotiable. Private lenders have the freedom to try to tailor the terms of a private mortgage loan to help fit the specific needs of the borrower.
Large Loan Amounts– While some homeowners may turn to a personal loan or a credit card to help solve short-term financial needs, typically the amount that they will be able to access in these routes will be limited. Private mortgage loans can represent substantially more when they are based on the equity of your current home, providing more room to pay off debts or legal fees.
Lower Interest Rates- Another disadvantage to turning to credit cards to fix short-term financial concerns is the typically high-interest rates charged. It is not uncommon for credit card companies to charge upwards of 21% to 30% which makes paying back such debt extremely difficult for many. The interest rate charged by most private lenders in Ontario typically ranges from 7% to 12% depending on your unique financial circumstances. Fees associated with private loans are quite reasonable and range from 3% to 6% of the total cost of the loan.
Mortgage Broker Store Can Direct You to Private Mortgage Options
At Mortgage Broker Store, we are very experienced in the realm of private mortgage financing. We also have specialized knowledge in the area of power of sale and foreclosure. With a network of private lenders throughout the Province, we will be able to point you towards a private lender to help negotiate the best terms on a private mortgage loan. Don’t let damaged credit stand in your way of taking out a second mortgage on your valued home.
