For anyone who has lived in Ontario during the worst Pandemic that we have witnessed in our lifetime, it is common knowledge that the Ontario housing market has been outperforming all expectations held by both those inside the mortgage and real estate industry as well as homeowners and those that aspire to homeownership.
Although many mortgage insiders were undoubtedly very concerned about the potential impact that the Covid-19 pandemic would have on various sectors, especially the housing sector, history has taught us that often the least expected outcome can unfold before our eyes.
Housing has appreciated throughout the GTA and throughout the Province in record numbers in 2020 and has continued through August 2021, with an astonishing 31.1% year-over-year increase in Toronto and neighborhoods within the GTA. Similar numbers are mirrored in other urban areas throughout the Province.
Not only has the Ontario housing sector flourished during the prolonged Pandemic, but those falling into mortgage arrears have also remained low throughout 2020 and well into 2021. According to August default numbers released by the Canadian Bankers Association, of the 2, 108, 784 mortgages in Ontario only 1, 734 are currently in arrears. This number represents just 0.08% of all mortgages.
With all the media coverage and hype surrounding the real estate numbers, some may wonder if they can jump on the mortgage bandwagon. Existing homeowners may also be anxious to utilize some of their existing equity and are looking into second mortgage options. In Ontario, if credit is not an issue, there are many lending options available.
What if your credit is damaged? For those that have credit issues and do not meet the stringent criteria set forth by the banks, turning to private lenders that are experienced and well established throughout the Province is a good option. There may be questions, however, surrounding the regulations pertaining to private lending and whether the same mortgage rules apply to private lenders as compared to banks or even trust companies and credit unions.
Comparing the Ontario Lending Options
When an Ontario borrower applies for a mortgage they must go through a recognized lender to determine the mortgage rates and general terms of a mortgage loan. There are many lending options in Ontario and the mortgage industry has classified them into three general categories:
- A lenders– The Banks which require at least a credit score of at least 650 and substantial household income to qualify for most mortgages. Homeowners, borrowers are also put through rigorous mortgage stress tests to qualify for a bank-provided mortgage.
- B lenders- Trust Companies and Credit Unions which require at least credit scores of 600 and are also expecting substantial household incomes and additional financial assets to qualify for mortgage financing.
- C lenders– Private lenders which can provide mortgage financing despite poor credit and non-traditional household income such as freelance, contract-based or self-employed.
Understanding the “Rules” Pertaining to Private Lenders
If turning to a private lender (C lender) makes sense, it would be beneficial to understand how a private lender(s) operates in Ontario and under what Government supervision or mortgage rules do they need to adhere to.
To be clear, private lending as such does not fall under the same regulatory guidelines as other mortgage lenders in this Province. Although not completely unregulated in theory, it is the mortgage brokers and mortgage agents that private lenders work with that are regulated. Rules are also in place to follow when negotiating mortgage contracts.
Just as when you approach other mortgage lenders, required documentation must be assessed and any mortgage terms that are finalized between the homeowner and the private lender must be written down. A private lender will also be working with a real estate lawyer to ensure that terms meet the necessary legalities.
Most private lenders will be working with licensed mortgage brokers and mortgage agents. For any mortgage broker to legally work in Ontario they must be licensed. Ontario mortgage brokers are licensed and registered with the government agency that is responsible for overseeing mortgage brokering, the Financial Services Regulatory Authority (FSRA), formerly known as the Financial Services Commission of Ontario (FSCO).
The Mortgage Brokerages, Lenders, and Administrators Act mandated in 2006 dictates that all businesses and individuals that carry out mortgage brokering services are to be licensed. Unlike in the US where private lending (commonly referred to as hard money lending in the US mortgage sector) is not regulated, in Canada, private lenders work within the same mortgage paradigm and work with regulated brokers and real estate lawyers to ensure the client is protected.
Mortgage Broker Store Will Help Direct Your Private Mortgage Options
If you are an Ontario homeowner/borrower who would like to obtain mortgage financing, don’t let credit issues stand in your way of taking out hard-earned equity from your property to pay for needed expenses.
Mortgage Broker Store has access to a broad network of private lenders throughout the Province with specialized knowledge of the private mortgage sector. A private lender will be able to sit down with you and discuss your options directly which will help you achieve your mortgage goals.