Finding Private Funding Mortgages in the GTA
Tighter Lending Rules Squeeze Out Home Buyers
Due to ever-changing and stricter mortgage rules, fewer first time home buyers are able to qualify for a traditional mortgage from Canada’s major financial institutions. While tighter mortgage rules were put in place to prevent a housing market bubble like the one witnessed in the United States in 2008 and 2009, they have also dashed the dreams of home ownership for many in the Greater Toronto Area (GTA).
Ten years ago, you could purchase a home with zero down and a 35-year amortization period. Today, you need a minimum 5.0% down payment for homes under $500,000 and a 10% down payment for homes between $500,000 and $1.0 million.
Amortization periods have been reduced to 25 years and there are minimum credit score requirements. The Canadian Mortgage and Housing Corporation (CMHC) also discontinued mortgages for second homes and those who are self-employed without third-party income validation.
Because of these strict lending rules, an increasing number of Canadians are turning to private mortgage lenders. According to the most recent figures as revealed in the Financial Post, private mortgage lenders account for around 4.0% to 5.0% of the overall national mortgage market. In Ontario, it is private lenders that are responsible for about 4.0% of new mortgages and that number is growing.
In Toronto’s red-hot housing market, private mortgage lenders are a lifeline, helping those shut out by Canada’s big banks realize their goal of home ownership.
Uses for Private Funds
While private mortgages are used to purchase a first home, many current home owners look to private mortgage lenders for a second mortgage.
A second mortgage is a second loan that is secured against the equity in your home. With a traditional second mortgage, you can borrow up to 80% of the appraised value of your home.
A second mortgage can supplement bank financing, but many of Canada’s conservative banking institutions do not issue second mortgages since they view them as being high in risk.
However, second mortgages are important to many real estate investors. For instance, investors who flip houses only need to borrow money for a short period of time before reselling the property and paying off the loan.
Real estate investors also like to use private mortgage lenders if they buy a distressed property and fix it up, or if their investment property is not generating the current market value for rent and needs to be renovated.
In some instances, a borrower can be turned away from the bank because they have too many properties in their portfolio. The investor may not have enough of a down payment to purchase another property, so they turn to a private mortgage lender.
Founded in 2013, Mortgage Company of Canada (MCC) has developed a diversified portfolio of over 300 residential mortgages with a mix of investment types across the GTA.
MCC must accept all applications for mortgages via licensed mortgage brokers. We are unable to accept direct applications. To find a licensed mortgage broker, visit: the Canadian Association of Accredited Mortgage Professionals (CAAMP) or the Financial Services Commission of Ontario (FSCO).