There’s Always an Alternative.

When it comes down to getting approved for a mortgage, there are a lot of factors and not everyone will qualify. So what are your options if the banks say “no”?

When conventional lenders (such as banks or credit unions) deny mortgage financing, it can be easy to feel discouraged. However, it is important to remember that there is always an alternative! That’s where alternative lenders come in.

what is an alternative lender?

While the big banks, monolines and credit unions – or “A lenders” as they are sometimes referred – are viewed as the gold standard in the mortgage industry, some people have no choice but to consider other options for financing.

If you’re seeking a mortgage, but your credit score is damaged in some way and big institutions won’t lend you the money, you’ll find yourself in what’s commonly referred to in the industry as the “Alternative-A” or “B” lending space.

Much like the A Lender space, there are various companies which operate in the B lending space. Some B lenders are known as Mortgage Investment Companies (or MICs). Like the big banks, they’re still regulated, have shareholders and a board of directors and essentially act like a typical company. Equitable Bank and Home Capital are examples of other institutions that offer alternative options.

Alternative lenders cater to individuals which lack a strong credit history, or a guaranteed income (recent immigrants, or the self employed, for instance). As a result, these lenders generally have lower entry qualifications, which are offset by higher interest rates.

WHY IS ALTERNATIVE LENDING NECESSARY?

• CRA arrears
• Income issues such as non-traditional income as with self-employed borrowers
• Credit issues such as low credit score, credit arrears, current mortgage or even bankruptcies
• Unexpected liens on title
• Foreclosure situations
• Unique financing needs/opportunities

private or unregulated lenders

Beyond B-lenders are another alternative, which are known as Private or Unregulated lenders. These could just be individuals with money who are looking to invest. They are not regulated by any agency, and their rates and fees could be quite high.

These lenders are not required to stress test mortgage applicants, but many will abide by lower qualification rates. As a result, getting approved for a loan through an alternative or uninsured lender can be much easier than going through a traditional bank or credit union.

However, the same with B Lenders, it is vital to pay close attention to the deal an unregulated lender offers. Lower qualification rates tend to come with baggage in the form of high interest rates or penalties.

plan b mortgage services

Cole Hennig, president of Plan B Mortgage Services, explained his company typically deals with clients who are self-employed, have damaged credit and a score somewhere below 650. Some have difficulties proving their income. They could be looking for a second mortgage or seeking a way to keep their current home. He also noted that his clients often experienced a “trigger event”, such as a job loss or work-place injury, which forced them to take on more debt than they and can’t manage.

The point of using an alternative lender, according to Hennig, is to get back into the good books of a conventional lender. Plan B will work with their clients, offering a full assessment of their situation, and provide tools to repair their credit. However, Hennig added it’s critical his clients have a path to getting out of the B lending space.

“Usually, we’re seeing people who have hit a rough spot, and our job here is to get them an immediate solution,” he said. “But, if it doesn’t lead anywhere, it’s no good to us. We’re not going to do a deal if we don’t see how it’s going to help them get back to the best place they can be.”

At that point, Hennig said a difficult conversation with the client needs to be had, which could include advising them to sell the home to avoid foreclosure.

considerations for alternative mortgages

Due to the “B” Lender space, it is important to take a good look at the conditions for these mortgage products to ensure that you won’t get trapped with rates you can’t afford.

Before considering an alternative mortgage, there are a few things you should ask yourself:

1. What issue is keeping me from qualifying for a mortgage today?
2. How long will it take me to correct this issue and qualify for a mortgage?
3. How much do I currently have available as a down payment?
4. Am I willing to wait until I can qualify for a regular mortgage, or do I want/need to get into a certain home today?

If you are someone who is ready to go ahead with an alternative mortgage due to heavy credit score damage, or you don’t want to wait until you’re able to qualify with a traditional lender, these are five questions you should ask when reviewing any alternative mortgage product:

1. How high is the interest rate?
2. What is the penalty for missed mortgage payments? How are they calculated? What is the cost to get out of the mortgage altogether?
3. Is there a prepayment privilege? For example, are you able to avoid penalties if you give the lender a higher mortgage payment once a month?
4. What is the cost of each monthly mortgage payment?
5. What is the fine print?

When it comes to the alternative lending space, things can get a bit murky. Seeking the help of a mortgage broker will ensure that you are making the best decision for you! A qualified broker can help you source out various alternative mortgage products and will review the rates and terms to ensure it is the best fit.

written by my DLC marketing team.

Canada’s Economy Unexpectedly Contracted in Q2.

Housing Dampened Economy in Q2

This morning’s Stats Canada release showed that the economy unexpectedly contracted in the second quarter by 1.1%, down from the revised 5.5% gain in the first three months of the year. The Canadian dollar dipped on the news to $.7921 as questions of resiliency in the face of the delta variant mount. Economists in a Bloomberg survey were anticipating a 2.5% expansion. Adding to the disappointment, economic growth fell a further 0.4% in July, according to a preliminary estimate.

The weak GDP data reduces the odds of the Bank of Canada tapering their bond purchases at their policy meeting on September 8th. It also highlights the output gap–the degree to which the economy remains below full economic capacity–remains a big issue. The Bank has forecast the gap to close by the middle of 2022. While that remains uncertain, we continue to expect growth to rebound in the third quarter.

Increases in investment in business inventories, government final consumption expenditures, business investment in machinery and equipment, and investment in new home construction and renovation were not sufficient to offset the declines in exports (-4.0%) and homeownership transfer costs (-17.7%), which include all costs associated with the transfer of a residential asset from one owner to another.

Housing investment reshapes the economy

Since the third quarter of 2020, housing investment has emerged as the predominant contributor to economic activities and capital stock—with residential capital stock surpassing non-residential capital stock. Moreover, the average housing investment for the previous four quarters was 17% higher than the average over the last five years.

housing investment

Both new construction and renovations—the components of residential capital stock—have shown sustained growth since the third quarter of 2020. Because of the ability to work from home, savings from less travel and reduced participation in other activities, low mortgage rates and increases in home equity lines of credit, spending has continued to increase on new houses (+3.2%) and home renovations (+2.4%).

After taking on $62.3 billion of residential mortgage debt in the last half of 2020, households added $84.2 billion more residential housing debt in the first half of 2021.

Supply chain disruptions continue to impact motor vehicles

Shortages of microchips and other inputs curtailed trade in motor vehicles and domestic consumption. Household purchases of new passenger cars (-7.2%) and trucks, vans and sport utility vehicles (-1.6%) decreased, while business investment in medium and heavy trucks, buses and other motor vehicles fell 34.2%. Longer plant shutdowns because of international supply chain disruptions have constrained imports of parts and led to significant decreases in exports. Low production of motor vehicles and parts resulted in an 18.9% drop in exports of passenger cars and light trucks and an 8.7% decline in tires, motor vehicle engines and parts exports. Inventories had another quarter of significant drawdowns in response to supply needs.

Double-digit household savings rate continues

The modest rise in household spending (+0.7%, in nominal terms) was outpaced by growth in disposable income (+2.2%), leaving households with more net savings than in the previous quarter. Household incomes were primarily bolstered by employees’ rising compensation and increasing transfers received from the government, which were partially offset by a 2.8% rise in personal income taxes.

Consequently, the savings rate reached 14.2%—the fifth consecutive quarter with a double-digit savings rate—as various pandemic-related restrictions and uncertainty continued to limit the scope of household consumption. The household savings rate is aggregated across all income brackets; in general, savings rates are greater in higher income brackets.

Bottom Line

Today’s release is, in some respects, ‘ancient history.’ It is still widely expected that the economy will rebound in the third quarter. With the surge in household savings and continued growth in personal disposable income, pent-up demand is likely to boost consumption for the remainder of this year. All eyes will be on the August employment report released Friday, September 10th. The Bank of Canada will likely continue to proceed cautiously. Another tapering of the bond-buying program will come under scrutiny, and forward guidance will continue to suggest no rate hikes until the second half of next year.

written by DLC Chief Economist Dr. Sherry Cooper

Choosing Your Mortgage Broker.

There is a little doubt that the biggest purchase of your life will be your home. When embarking on your homeownership journey, having the right support and information will make all the difference. Fortunately, a mortgage broker can help!

With access to more than 230 lending institutions including big banks, credit unions and trust companies, mortgage brokers are experts in mortgages. These connections allow them familiarity with a vast array of available mortgage products, and also ensures that the advice they offer is unbiased. Unlike banks focused on signing you for profit reasons, a mortgage broker is a third-party service who gets paid no matter which bank they sign you with. This means they can provide the best rate AND unbiased advice because they are focused on helping you achieve your dream.

It is estimated there are nearly 20,000 mortgage professionals in Canada. With so many choices, it is important to find a mortgage broker who works best FOR you.

With so much information at your fingertips on any given broker, it is easier to help narrow down the search. Especially with tools like the Dominion Lending Centres exclusive My Mortgage Toolbox app. Available on Google Play and the iStore, My Mortgage Toolbox makes it easy for potential homeowners to find a mortgage broker nearest them!

“The idea behind My Mortgage Toolbox was to make it simple for Canadians to manage the mortgage process by putting all the information they need into the palm of their hand,” noted Gary Mauris, Founder and CEO of Dominion Lending Centres.

Some features available through this application include a variety of calculators to help clients determine:

1. What they can afford
2. The minimum down payment required
3. Closing cost estimates
4. Total monthly ownership costs

Click here to download the app today!

While online tools and apps can give you pretty good insight into a potential broker, there are a few other things you might also want to consider to help make that decision a little easier.

While it is never a bad idea to go with an established professional with an abundance of clients and years of experience, you should also open to considering newer, hungrier brokers who are striving to make their mark in the mortgage space. At a busy firm, it is easy for you to feel like a small fish in a big pond, especially with a smaller portfolio, whereas a smaller brokerage can likely provide you more attention.

While brokers spend a lot of their time neck-deep in mortgages and tend to use industry jargon, a professional broker will understand if you are a first time homebuyer and will do their best to explain the terms and the process to you. Understanding is vital in your homeownership journey  so make sure to seek out a broker who is going to keep it simple for you and be honest, allowing you to understand exactly what you’re getting in your mortgage.

Ultimately, it comes down to the mortgage product but don’t be blinded by interest rates. It is important that your broker explains everything to you from term conditions to penalties, as well as why you qualified for the rate you need. It is also important to use caution if a broker is selling you on a rate and making promises to pay for fee; this is a red flag. If they say they’re going to pay for everything, they’re desperate for anything.

Of course, the rate matters, but the characteristics of your mortgage matter more and could end up costing you in the long run. You want a broker who’s going to listen to you and ask you about your needs and future goals. What are your plans five or ten years from now? Why are they so important to you as an individual? When looking at any mortgage product, consider that nearly 70 percent of mortgages are broken within three years. Even if you’re sure of today, life happens and tomorrow could be different. Therefore, you must consider the penalties for ducking out of your mortgage earlier and you should know if it is portable.

The best mortgage brokers in the business will make sure all of your bases are covered, and you’re fully aware of what you’re signing onto. The right broker will make the process easier for you, whether it’s buying your first home, shopping for a better rate, or even jumping into investment properties. No matter what stage of life you are in, we’ve got a mortgage product – and a broker – for that!

Written by my MY DLC marketing team