The mortgage rules that went into effect last summer, and eliminated LTV ratios below 80 per cent, were a bit of a nightmare for borrowers; but they also presented a huge opportunity for private mortgage investors. This new rule meant that now, borrowers can borrow no more than 80 per cent of their home’s value; and that includes things like refinancing. But borrowers aren’t ready to let go of those 85 per cent LTV mortgages just yet, and lenders (not wanting to lose the business) are looking for ways to provide them with one – without forcing them to pay hefty mortgage insurance fees. Now, they’ve found one. And if you’re a private mortgage investor, it’s one that’s working in your favour.
What lenders are now doing is loaning the borrower the full 80 per cent that they can without forcing the borrower to turn to mortgage insurance. Then, whatever the percentage is left that the borrower would like to borrow for their mortgage, the lender turns to a private mortgage investor for the portion that’s remaining. Usually that’s about 5 to 10 per cent.
And not only are lenders doing this, they’re not even trying to hide the fact that they are. It’s not going against the rules laid out by the Finance Department, so there’s no reason they can’t be upfront and legit about these practices, and it means that they’re actually actively marketing this option so that borrowers know they can pursue them. This means that it’s giving private mortgage investors – those who usually fly well below the radar – even more exposure to the Canadian housing and mortgage market. Which in the end, means more business for you!
Of course you and your broker can still apply all the same terms to the private mortgage contracts that are usually present such as an interest rate that works best for you, and terms that will protect you from default. Of course, also ask your broker if they work with lenders such as Home Trust and Optimum Mortgage, two lenders that are currently using this innovative strategy.