In 2008, the Canadian government, changed the laws pertaining to mortgages. This made it more difficult for applicants to qualify for mortgages from the large institutional banks, who were forced to apply more stringent financial regulations.
Tougher Regulations since 2008
Seventy five percent of mortgages are held by these large corporations, according to a survey conducted by the Bank of Canada, there are other alternatives for those who have difficulty obtaining a mortgage through conventional streams.
Dealing with Large Corporations
Banks are very often part of large multi-national organisation that by necessity have large corporate structures. They are unable to bend rules for those who have less than perfect credit scores or for those who earn commission or are self-employed and are therefore unable to prove that they have a regular income.
Dealing with large corporate organisations is difficult and impersonal. More often than not lenders cannot pitch their case to the person who will make the ultimate decision on whether to lend them the money. They simply fill in the many documents and they are scored according to corporate standards.
Private Lenders have Advantages
The growing non-bank lending sector offers people who are unable to obtain a mortgage through the banks, the opportunity to invest, by offering short term mortgages for approved investments. These institutions actually target those who find it difficult to obtain conventional loans.
They are less interested in the person seeking the mortgage than in the property itself as this is used as collateral for the loan. They will often finance properties that banks traditionally turn down.
Private lenders have several advantages over banks:
- They are more flexible
- There is no corporate bureaucracy
- They have a higher tolerance for risk
- The turn around time from application to approval takes less than half the time that it takes conventional lenders
Private lenders are more personal. You will have the opportunity to explain your individual set of circumstances to the person who will approve the funding. These companies are free from corporate headquarters and are therefore much more flexible when it comes to making decisions regarding your requirements and then matching your circumstances with a suitable funding plan.
The lean structures of these organisations and the lack of bureaucracy also means that they make decisions much more quickly, so lenders are able to take advantage of opportunities as they emerge.
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Private Mortgage Lender’s Interest Rates
The private mortgage lender will draw up customised loan plans that will match the risk with the cost. Because the private lenders are willing to take on higher risk the loan will attract a higher interest rate which can be anything from ten to eighteen per cent per annum.
Plan for a Conventional Mortgage within Three Years
Make sure that private loans do not have pre-payment penalties, as you should plan to replace the private mortgage with a conventional bank loan as soon as you are able to take advantage of the considerably lower interest rate offered by conventional banks. In any case you should plan to replace the private mortgage with a conventional one within three years.