Subprime mortgages shot to attention during the Global Financial Crisis (GFC) around 2007. Subprime mortgages have a big market in the USA but also in Canada, as the country bore the brunt of GFC as well. You may be wondering what exactly are subprime mortgages? And what is their role in Canada these days?
Subprime mortgages explained: Subprime mortgages or ' second chance' loans are any kinds of mortgage given to individuals who are highly unlikely to pay it back. The word 'subprime' itself means less than prime or less ideal and hence refers to a non-ideal borrower. Such a borrower usually had a low credit rating or unfavorable financial circumstances. To the lender issuance of a subprime mortgage means undertaking a huge risk, and hence, the rate of interest for subprime mortgages is considerably high. The terms of the mortgage are also not so favorable towards the borrower.
In short, subprime mortgages or 'last resort' loans are issued to those individuals who fail to qualify for regular mortgages. Individuals with credit scores lower than 650 are considered subprime borrowers.
Who should you approach for subprime mortgages?
If you are looking for subprime mortgages in Canada, you need to shop with the 'B 'lenders'. 'B lenders' are those lenders who provide mortgages to individuals with low credit scores or those who for some reason are denied regular mortgages from 'A Lenders' which include credit unions and banks.
When should you opt for a subprime mortgage?
If you want to buy a home but have a low credit rating you can opt to apply for a subprime mortgage. But it is always better to explore and exhaust all other options before signing up for a subprime mortgage. If you are getting a subprime mortgage on reasonable terms you could consider taking it.
Subprime borrowing in Canada
There are many B lenders in Canada who may offer you a subprime mortgage. You could approach them but with caution about the terms. The government and authorities in Canada are diligent and hence have ensured that are no major damages such as the global financial crisis of 2007. Hence subprime borrowing is fine.
Role of mortgage brokers
But if you are looking at taking a subprime mortgage, besides keeping all other abovementioned points in mind you should approach a couple of mortgage brokers and proceed with extra caution. What’s more? Mortgage consultations are free. When you approach a mortgage broker who has all the working knowledge of such mortgages, he/she can assess your current financial situation and show you a way forward. Mortgage brokers work in your best interests. After a thorough assessment of your situation, they may tell you if the subprime mortgage you want to take is worth it or not. They could even guide you to better loan options available to you depending on your credit rating. Hence, we strongly encourage you to make that appointment with a mortgage broker before blindly signing up for a subprime mortgage. We are always happy to help.