#GoodReads – Alternative Mortgage Lenders

What you need to know about alternative mortgage lenders in Canada

via Canadian Real Estate Magazine.

“…What are alternative mortgage lenders?

‘Alternative mortgage lender’ is a general term for a range of different groups that provide loans for home buyers. A majority of Canadian mortgages are borrowed from the Big 5 banks. These banks offer some of the best mortgage options but are very strict about who they will approve, and they are highly regulated by government policy.

Alternative lenders, on the other hand, have more flexibility on what kind of terms they offer. They also often have different criteria when it comes to approving mortgages. Alternative lenders may include smaller banks, credit unions, B-lenders, and private mortgage lenders.

Each different type of lender in the Canadian mortgage industry operates slightly differently, but they all provide mortgage lending in some form or another.

Because mortgage lenders may take on riskier borrowers, they need to cover their risk somehow, and the result is often marginally higher interest rates. However, the difference can be relatively minor to a borrower, especially when it comes down to getting a home or not. In other cases, alternative lenders may be able to offer somewhat lower rates than a bank mortgage.

Just because mortgage lenders aren’t one of the big banks, this doesn’t make them any less a legitimate source of financing. The most popular alternative mortgage lenders are highly reputable companies with whom thousands of Canadians get mortgages every year. As being qualified at a major lender becomes more difficult, many Canadians are looking to alternative mortgage lenders to fund their home purchases…

What kinds of mortgages do alternative mortgage lenders offer?

Like with a major lender, alternative lenders offer a few different mortgage products, and each has its own use for a borrower. These include the standard options you would expect from any bank, such as a traditional mortgage, a home equity loan, a HELOC, a second mortgage, or a refinance. Other options for alternative lending may include:

• Bridge loans – A bridge loan is a short-term loan that is intended to tide over a period of time. For example, you might use a bridge loan to cover a down payment before your previous home sells or improve your financial status to be approved for a full mortgage.
• Rent to own – In a rent-to-own plan, you rent from a property owner at an increased rate, with the extra money going towards a down payment. Eventually, once you have saved enough through renting, you can use the down payment money and convert it to a standard mortgage.
• Seller Financing – Seller financing is essentially borrowing money from the seller to buy their home, which is then paid back over time. This may also be known as a vendor-take-back. Because you aren’t dealing with a financial institution, these loans can be very flexible if you can negotiate, but it can also be hard to find a willing lender.
• Reverse mortgage- Rather than making monthly mortgage payments to a bank, the bank pays a homeowner regular payments against their home equity in a reverse mortgage. At the end of a reverse mortgage, the loan is usually paid back with proceeds from selling the home. These loans are only offered to people above 55 and are intended to serve as income during retirement years.
• Construction loans – construction loans are used to fund the cost of building a new home. Once the house is completed, the loan can be paid back or rolled over into a regular mortgage…

Unsure where to start? Talk to a mortgage broker

Often you hear people talk about mortgages as if they are a single thing. In reality, a mortgage is just a type of loan, and within that category are a range of different types of mortgages offered by different lenders with different terms. There can be a lot to consider if you want to get the best deal possible and avoid making mistakes.

If you are unsure, it is highly recommended you work with a mortgage broker to find mortgage financing for your home. It is a mortgage broker’s job to know about the range of different lenders and their products. They can easily help you find and compare many different lenders, as well as help you to access exclusive deals.

Especially if you have a special circumstance like high debt or poor credit history, a mortgage broker can consider your needs and help you find the best possible mortgage option for your circumstances.”

To read the full article, click here.