private lenders Archives - Ira SmithTrustee & Receiver Inc.

Toronto condo market report: Introduction

The subprime lending industry is alive and well in Canada; that is the subject of this Toronto condo market report. In fact, subprime lenders hold almost 8% of Canadian mortgages, which is a hefty 37.8% increase compared to the same quarter last year. And, this is the sixth consecutive quarter we saw the subprime lending industry grow. It’s now at its highest level in 10 years. Although many pundits blame the spike in prime lending to the new mortgage stress tests, it’s clear that this trend began years before stress testing was introduced.

Toronto condo market report: What are subprime loans and how do you get one?

Any loans that are for borrowers that do not have a good credit score
They’re done through private lenders, typically accessed through a mortgage broker
Private lenders are not federally regulated like the banking industry
Private lenders charge steep prices

Toronto condo market report: Why do people take subprime loans?

You may be asking why anyone would take a subprime loan and pay considerably more money than they would at a bank.

Transunion estimates that 11.9% of the 28.4 million Canadian consumers with credit profiles are subprime which means that they wouldn’t qualify for a mortgage from the bank
A borrower with excellent credit might resort to a subprime loan because the bank won’t lend them as much money as they need
Even a person with bad credit or no credit, there is a private lender willing to give a subprime loan

Toronto condo market report: How is subprime lending affecting Toronto’s condo market?

For some reason known only to the government, they don’t track subprime lending. CIBC Economics show that over:

1 in 10 Toronto condos registered in 2017 was attached to astronomically high mortgage rates
17.4% of owner-occupied condos registered in 2017 had a mortgage rate above 9%
16.2% of condo investors with units that registered last year were paying more than 9%

Toronto condo market report: What’s going to happen if the market starts to soften?

The problem with paying astronomically high-interest rates is what’s going to happen if the market starts to soften? How will these condo owners with subprime loans get their money out, let alone make a profit?

The mortgage stress tests are in place for a very good reason. To ensure that Canadians don’t buy houses or condos that they can’t afford. Trying to avoid the system by going to private lenders and paying high-interest rates can put you in a financial danger zone.

Toronto condo market report: Are you in a financial bind?

If you’re in a financial bind because you’re living in a property that you can’t afford, or for any reason, you need professional help now. With a cumulative 50+ years of experience, the Ira Smith Team has helped people just like you who are facing a financial crisis. Give us a call today. We can help you overcome your financial difficulties Starting Over, Starting Now.

New mortgage rules November 2016: Introduction

New mortgage rules November 2016 come into effect. We recently discussed Canada’s alarming consumer debt and the housing boom. The government stepped in to prevent Canadians from assuming bigger mortgages than they could afford. One of the measures recently put into effect was a mortgage rate stress test for approving high-ratio mortgages.

New mortgage rules November 2016: Mortgage rate stress test

This stress test is now applied to all insured mortgages to prevent defaults in the future should the mortgage rates rise. Buyers applying for an insured mortgage now have to show they can afford to pay it back at the Bank of Canada’s five-year fixed rate of 4.64%. This means that some Canadians who could have qualified for a mortgage before the stress test will no longer qualify.

New mortgage rules November 2016: Can Canadians avoid the mortgage rate stress test by borrowing in the shadow lending market?

Some mortgage brokers who are clearly disgruntled at the thought of the Canadian mortgage rules forcing them to lose business have worked out a way to bypass the stress test and beat the system by sending their clients to private lenders – also called the shadow lending market or subprime lenders. Buyers borrow money from private lenders so that they can make a 20% down payment which qualifies them to take out an uninsured mortgage, therefore there is no stress test required.

New mortgage rules November 2016: Is it a good idea to borrow from private lenders?

Typically, private second mortgages in Toronto charge a minimum interest rate of 7% – 10%. For people who really want to be home owners it may seem like a good idea, but they’re going to be left with a very high mortgage payment; perhaps higher than they can afford to pay in the long run.

The new mortgage rules November 2016 and programs like the mortgage rate stress test are enacted to protect Canadians, not punish them. Thinking that you can beat the system doesn’t make sound financial sense.

New mortgage rules November 2016: Do you have too much debt?

Have you assumed a mortgage that you can’t afford to pay? Are your mortgage payments stopping you from paying your other debts? Don’t let these ghosts and goblins scare you.