Some borrowers are now turning to private lenders at higher risk. The reason? The tightening lending rules put in place by Ottawa.
“The demand for loans from private lenders has increased,” confirms Denis Doucet, director at Multi-Prêts, a network of mortgage brokers.
Because, he explains, “the private loan is not regulated. You and I can decide to become private lenders today. “These loans are riskier and therefore at higher interest. When a borrower takes these types of loans there, there is more risk of being in a difficult situation if he loses his job,” says Doucet. If your monthly payment costs $ 200 more [than a mortgage contracted with a bank], an unfortunate event will be more problematic for you. ”
More stringent rules for all
To protect consumers against a possible rise in interest rates, Ottawa introduced stress tests in 2016 for people who want to take out a mortgage but do not have at least a 20% down payment. Based on these rules, clients’ borrowing capacity is measured against the Bank of Canada’s higher official rates or the chartered bank rate plus 2%.
New rules that came into effect on January 1, 2018 extend this measure to anyone wishing to make a mortgage.
These measures are only imposed on financial institutions that are subject to federal legislation, including chartered banks. Those to whom banks refuse a loan may therefore be more numerous, and a number of them could turn to non-bank lenders.
Desjardins adjusts to the federal rules
Although it is not required to do so by law because it is not a chartered bank, Desjardins Group chose to voluntarily apply the federal rules of the Office of the Superintendency of Financial Institutions (OSFI). ) and to pass the same tests of resistance to its mortgage borrowers.
“It’s a good way to protect people against rate changes and also help create a uniform framework,” said Desjardins spokeswoman Diane Lamarre. Ms. Lamarre added that it is still too early to know if the implementation of these rules will have an impact on Desjardins business.
The Autorité des marchés financiers (AMF) is preparing an update of its Mortgage Guideline to harmonize the lending rules between federal and provincial financial institutions. The update is expected to come into effect next month, according to AMF spokesperson Sylvain Théberge. “It will apply to all financial institutions doing business in Quebec, except banks,” he said.
WHO ARE THE PRIVATE LENDERS?
Most private lenders are individuals or groups of individuals who hold capital and are willing to invest in order to generate interest while accepting a certain level of risk. Advertisements from private lenders can often be found in newspapers or on the web with clues that a good credit record is not needed. Currently, a home loan from a private lender is offered at a rate that ranges from 10% to 12% for a first mortgage. For a second mortgage, the rate varies between 12 and 14%. In real estate jargon, a mortgage loan is said to rank first when the lender has a repayment priority in case of default and sale of the property. The holder of a second mortgage loan is reimbursed after the holder of the first mortgage loan.
This article is a good reflection of the mortgage market today, however it fails to address one major issue. Which of the Private Mortgage Lenders is the Best to use in Montreal. The key can be found in the article itself. The L’Autorité des marchés financiers (AMF). They also monitor private lenders who are required to register with the AMF if they use investors money. Unfortunately not all of them do. However one of the Best Private Lenders in Montreal is registered with the AMF. Tempbridge Inc, through its parent company HayesCor Real Estate. Check them out at www.tempbridge.ca
