As it is getting tough for private mortgage lenders to access capital, they are left with no choice but to make it difficult for borrowers. Thus, those who do not qualify at a traditional lender are finding it hard to get a mortgage approved from private lenders too. So how are the private lenders making it difficult for borrowers to get access to mortgage loans? They are doing so by raising the down payments need to be made to get a loan. Besides, they are also asking for borrowers to have higher equity in the house to qualify for the loan. This is being asked of borrowers because Canadian banks have come down heavily on lending due to the drop in housing prices and increasing rates of interest. Due to this borrowers are trying to reach out to private lenders instead of traditional lenders such as banks. Private lenders, as a result, are seeing a sea of borrowers lined up at their doors. To qualify for a mortgage with traditional lenders, borrowers have the pass the stress test, the rules for which are federally regulated in order to make sure that those borrowing the money have the capability of paying it back. Currently, the average rate of the mortgage is more than 5 per cent and to qualify for the mortgage they need to show they can make the mortgage payments even if the rate was 7 per cent i.e. two percentage points higher than the real contract. This is making it extremely tough for borrowers. Those who want to switch lenders are stuck with their current lenders, especially if they are finding the mortgage expensive. Hence, some of the private lenders are suspending new loan applications to protect their businesses at this time when the housing market is showing signs of cooling. In Canada, the home prices have dropped around 9 per cent. Private lenders who would earlier lend up to 90 per cent of the home are now willing to lend only up to 75 per cent which is a sharp decline in the LTV or Loan-to-Value ratio. This helps the lender as they protect themselves in this manner if a borrower defaults. Steps such as lowering of the Loan-to-Value ratio on second mortgages are being undertaken by lenders keeping in mind the ever-increasing interest rates. Some have even reduced it to as low as 65 per cent or lower. So every time there is an increase in the interest rates, it is shifting borrowers to the doors of private lenders who are suddenly overwhelmed with this surge of requests. If you cannot pass the stress test with banks and are looking to get a private mortgage and are stuck, confused, or need any help with it, do reach out to us at LendX Financial in Brampton, Greater Toronto Area.
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