Mortgage Restrictions and How Realtors Can Help Canadian Home Buyers

Mortgage and Lending with Olympus Labs

Canadian homebuyers are facing stricter mortgage rules, forcing many would-be borrowers to seek out private mortgage loans. Car loans, personal loans, online loans and bad credit are making it harder for potential buyers to get a mortgage.

Borrowers in the Greater Toronto Area (GTA) are experiencing a major shift, with a 67% increase in the number of homeowners turning to private lenders to refinance.

Loan companies have imposed newer restrictions, making it difficult to obtain a mortgage in Canada. Consumers can borrower lower limits compared to their income level, but renewing a mortgage from the same lender does not impose these same rules.

Borrowers that are using private lenders to refinance must be taking out more money when refinancing due to several factors. Debt is a main concern as well as owners that are spending beyond their means.

Experts warn that the trend is risky for borrowers who may be taking on private loans that are too high to pay for over the long-term.

Instead of borrowers seeking debt consolidation in Canada they’re turning to private lenders. Initial reports found that Generation X households account for half the mortgage value of private lenders. Real estate investors are also turning to private lenders. Vancouver is also experiencing a rise in private mortgages.

Situations Where Realtors Can Help

Credit and income issues are out of the hands of a realtor, but you do have options to help your clients land in their home without a private lender. A few main issues, due to the restrictions on mortgages recently imposed, are:

  •          New restrictions are valuing rental income at more conservative levels.
  •          Refinancing to purchase new rental properties is more difficult.
  •          New home buyers who have yet to sell their old home are unable to secure a mortgage.

In the past, it was easier to obtain a mortgage. Even new homebuyers are unable to secure funding for their home if their old home has yet to sell. The main reason is their inability to hold two mortgages at once.

Realtors can work with credit unions, some of which are following federal mortgage rules, to try and find those that don’t need to comply with new mortgage guidelines. There are credit unions that may be able to offer better options than a private lender.

Selling existing homes faster is also up to the realtor.

Advise clients to rent while they look for their new home if possible, but the ideal situation is for the older home to sell fast and allow the purchaser to obtain a new mortgage. It's almost always better to use a non-private loan, but there are times when a private loan may make sense.

Pricing a property to sell is another tactic a lot of realtors are using to sell homes faster and keep borrowers from using private lenders.

Private loans may provide the borrower with the funds to repair a home or sell rather than losing the home to the bank. But these lenders take on higher risks, so interest rates are higher and often put potential buyers or refinancers in a more difficult financial situation.


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David Jackson, MBA

Financial lending analyst
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