Due to the tightening of eligibility criteria for mortgage loans, more and more Canadians are being denied traditional mortgages. As a result, customers are looking for solutions from alternative lenders.
New mortgage settlements
As of January 1, 2018, the Office of the Superintendent of Financial Institutions (OSFI) Guideline B20 came into force. The change in regulations means that potential buyers must now demonstrate that they can pay their mortgage at the highest allowable rate between the contractual mortgage rate plus two percentage points and the five-year benchmark rate set by the Bank of Canada. Canada (5.14%). The contractual rate is the rate obtained during the financing phase.
If you already have a mortgage, the changes do not affect your loan before the renewal date. If you do not need to refinance your loan to get a better rate or consolidate your debt, you can simply renew the term of your mortgage with your current lender.
What if I have to refinance my loan or the bank does not offer the best rate?
If you want to consolidate the debt of your credit cards, withdraw funds for a renovation project or get a better rate, refinancing is a possible solution. However, it is necessary to qualify under the new regulations, that is to say at the rate of more than 5%! This increase is important because the slightest debt can discard a potential owner.
Alternative mortgage lender
Alternative mortgage lenders are not governed by OSFI guidelines. This means that if you can not get a mortgage from a traditional lender because of a lack of income, a bad credit history, or a high debt load, you can use a lender alternative.
Alternative lenders give you the opportunity to reduce your debts and restore your credit. Of course, there are risks for the lender. As a result, the lender transfers the risk to the client in the form of a higher interest rate. Interest rates for alternative lenders can vary from 5 to 15% depending on the client’s financial situation.
With every change in mortgage regulation, new trends are emerging that impact consumers and financial institutions. Due to the tighter eligibility criteria in Guideline B20, it is estimated that 20% of Canadians are no longer eligible for traditional mortgages. As a result, they are looking for solutions from alternative lenders, a market that did not exist in this context before the mortgage settlement changes.