A competitive housing market, elevated interest rates, and increasingly strict lending guidelines have made it much harder for Canadians to afford their own homes over the past few years. However, both existing homeowners and prospective buyers are beginning to feel more confident now that interest rates are easing. The central bank recently lowered its benchmark interest rate by 0.25% for the first time in four years.
Buyers who chose to hold off on buying a home last year are now perking up at the idea of jumping back into the market and the real estate sector is starting to see some new activity following months of sluggishness. After five straight months of falling home prices, the Canadian Real Estate Association reported that home prices steadied in February—a potential sign of a rebound. With further easing of interest rates expected, current homeowners may also be examining their borrowing situation in the context of their overall finances.
As curiosity grows, it’s a good time to reach out to clients to gauge their interest on whether they’re ready to start exploring financing options again. Borrowers will continue to rely on you for guidance in securing the optimal financing solution tailored to their unique circumstances. In today’s economic environment, flexibility reigns supreme—and it’s crucial for all mortgage professionals to familiarize themselves with alternative financing options like private mortgages. Unlike traditional lenders, private mortgage lenders operate without the same stringent rules and regulations. This allows for a vital alternative for many clients, including those that are uncertain about qualifying for a prime mortgage. In addition, enhancing your knowledge and tools on alternative solutions will give you the upper hand, as competition in the market rebuilds.
How private mortgage lenders can work for you
As a mortgage broker, you get to help individuals and families with some of the biggest—and most rewarding—transactions in their lives. It can also be a tough job when you have to break the news to home owners or hopeful home buyers that their mortgage application has been denied by the bank or another traditional lender. Expanding your range of financing solutions to include private mortgages can help broaden your appeal to a wider base of clients and help more Canadians buy homes and access equity in their properties.
The way that private mortgage lenders and mortgage brokers work together has evolved over the years. Previously, private mortgages were less popular among borrowers and weren’t well understood by brokers. However, as the affordability crisis deepened, leading private mortgage lenders began to build trust and fill the financing gap that banks and traditional lenders couldn’t. As a result, it’s become a key competitive advantage for brokers to not only have knowledge and expertise in alternative solutions, but also build strong relationships and ties to transparent and trustworthy private mortgage lenders. Understanding how different types of private mortgage lenders can work for you and your clients can help you expand your business and help more home buyers find financing options that are the best fit for their needs This is increasingly important as regulators set their sights on mortgage suitability to protect borrowers and enhance transparency in Canada’s lending landscape.
Private mortgage lending has become a sophisticated, digitally-driven sector that can help you and your clients. There are several different types of private mortgage lenders, from Mortgage Investment Corporations (MICs) to high net worth individuals to businesses that lend money from private sources. Private mortgage lenders are able to be more flexible and design unique mortgage solutions for specific borrowers based on the borrower’s full financial picture and their ability to repay—something that banks simply can’t do. Private mortgage lenders also offer product solutions that conventional lenders don’t, such as second mortgages, or mortgages with flexible repayment terms, such as interest-only and prepaid mortgages.
While interest rates on a private mortgage tend to be higher, private mortgage lenders like CMI price mortgages on a case-by-case basis, which can often save clients money in the long run. By design, a private mortgage is short-term in nature – usually not more than 12 months. But for some borrowers, it can be a valuable temporary solution to an immediate need, and a ‘bridge’ to help them move back to a conventional lender, with lower rates and fees. Right from the time of deal submission, an exit strategy – or a plan to move from the private space back to a mainstream lender – should be in place to set the borrower up for long term success.
By understanding these nuances, you can help tailor solutions that best match your clients’ needs and circumstances and continue to build your business in the competitive mortgage industry.
How private mortgage lenders can work for your clients
More borrowers are looking outside of traditional options to secure the financing they need to buy a home. With high interest rates, stress test requirements, and conservative lending guidelines, many home buyers are often left feeling disheartened and hopeless through the mortgage process. Presenting private mortgage lending as a flexible alternative that accommodates a broader range of financial profiles can help these home buyers successfully find the funds they need and empower them to improve their financial health.
There are several scenarios in which a private mortgage could be the right solution for your clients. This includes borrowers with:
- Credit issues, debt collections or credit proposals: If your client has a beacon score lower than 680, a bank is likely to deny their mortgage. Private mortgage lenders make their lending decisions based on the strength of a client’s overall circumstance and can also offer financing to help consolidate their debts to improve their credit.
- Time constraints: If your client needs short-term or fast financing, a private mortgage is generally much faster than the traditional approval process through the bank. CMI can generally approve financing in as little as a few hours.
- Changes to their job or income: If your client has recently experienced job loss or temporary lay off, it could appear risky to conventional lenders. Private mortgage lenders will look at other aspects of a borrower’s financial story to determine their ability to repay.
Private mortgages can also be a valuable option for:
- Self-employed borrowers, those with unique employment situations or irregular income
- Borrowers with property or income taxes owing
- Borrowers going through separation or divorce
- Borrowers who are new to Canada
- Real estate investors purchasing an investment property
- Borrowers looking to finance a new construction property
This list is by no means exhaustive. At CMI, we will consider all situations and work with you to try and find a flexible, common-sense solution.
Case Study: Private Mortgage Partnership in Action
At CMI, we’ve provided over $2.5 billion in mortgages to provide financing for these types of home buyers and more. Here’s one example:
A Toronto couple lost their jobs and could no longer meet their mortgage obligations.
Casey and Jessie owned a semi-detached house in Toronto. After a series of setbacks left them both out of work, the couple approached their mortgage broker when they realized they couldn’t meet their mortgage obligations. Their mortgage broker reached out to CMI to discuss how to help this couple avoid losing their home.
First, CMI worked with the broker to find out whether Casey and Jessie had enough equity in their property to provide enough funds to pay out their mortgage, debts, cover fees, and advance funds to ease their financial burden.
“If there’s enough equity in the property, it makes sense to prepay the mortgage and clear any debts so the borrowers don’t need to worry about making payments while they work on getting their jobs back,” said Josie Milanetti, Senior Vice President of Mortgage Operations at CMI.
Once the appraisal confirmed the value of their property was able to cover these costs, CMI was able to underwrite a new first mortgage to pay out their existing mortgage, as well as other high-interest debts to improve the couple’s overall cash flow for the next 12 months. Like most of CMI’s mortgage solutions, the term is 12 months and has a clear exit strategy for Casey and Jessie. They plan to refinance with a traditional lender at the end of the term, once they’re both employed in new jobs and back on their feet. By engaging a broker to help them secure a private mortgage, they were able to stay in their home and had some extra cash to help them during this time.
Milanetti says CMI will reach out to the broker about three months before the term is up to remind them that the mortgage is coming up for maturity, so that the broker can reach out to Casey and Jessie to help them source new financing or prepare for a renewal.
Empowering you for success
Preparation is key when it comes to guiding today’s home buyers and owners through the mortgage process. Educating yourself on private mortgages and keeping up to date on regulatory and accreditation requirements – including the new anti-money laundering regulations coming in October – will help you to provide strategic advice to new and existing clients. Selecting the right private mortgage lending partner will also be important. At CMI, we have a proven track record as a transparent and trusted private mortgage lender. We’re proud to help Canada’s broker community provide the financing solutions your clients need.
See why CMI is Canada’s premier private mortgage lender. Submit your deal today.
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