When you’ve made the decision to buy a new home, whether you’re making the transition from being a renter to becoming a home owner or you’re taking the leap into home ownership moving out from under your parent’s roof… The most important part of the process isn’t finding the right house to buy… It’s securing the financing you need to make that large of a purchase. Whether you’ve been saving through the years, or you have a nest egg of money that’s been left to you by a loved one, you’ll likely still need to secure a mortgage as well.
But where do you get a mortgage?
For most, the first thought that pops into your head is the bank… of course. After all the bank has held your money safe since you first opened your account, and having been a great customer for a long time they should give you a great rate right?
Not necessarily… And, if you’ve run into credit card debt in the past, you have a hefty car loan and you’re still working away at paying off your student debts they might not be willing to give you a mortgage at all. Yes, it’s true… The bank can just say “no”.
But when the bank says no, is that the be all end all?
Not always. I mean in some cases it’s just not possible to secure a mortgage loan if you have too much money owing on loans already, but there are a few loopholes you can take a look at as options. For example, you could get a co-signer or you could try and secure funding from a trust company, a credit union, a mortgage investment company (MIC) or a private lender might be willing to take you on, lending you the funds you need. In fact, when it comes to banks, the majority of the time when you do get a mortgage from your bank you might have been eligible for a better rate or options had you of gone with one of the alternative lenders mentioned.
So, what is the difference between these lenders and why haven’t you heard of them before?
Well, in short, the bank is easier. We all have very busy lives and we just don’t think to seek out other options aside from what we know of, and mortgages aren’t really taught about in schools to prepare you for buying a home when you’re ready.
Let’s take a look at the basics of each lender and the benefits of securing a mortgage with them.
First on the list, the bank.
There are likely many banks in the city you live in, from CIBC to RBC and the likes there’s one on nearly every corner. When you first learn about money typically at a fairly young age, you open a bank account, you deposit money into the account and then when you want to spend that money you withdraw the amount you need and you make your purchase. But, banks offer many services beyond your basic bank accounts. You can setup investment accounts, tax-free savings accounts, credit cards, a line of credit, RRSPs, wealth management and more in addition to mortgage loans. The banks are regulated by the Bank of Canada and in turn the government and with these regulations, the rates and options within each area of banking services have limitations and strict guidelines to follow.
A Trust Company on the other hand…
Is a legal entity that acts as a guardian of funds on behalf of a person or business. However, because they are not government owned they have more flexibility in who they can lend to and how they lend to them becoming a great option for those that need a little extra help in securing a mortgage for one reason or another. They provide you the personalized service and products you need and usually have higher interest rates to compensate for the high risk they take on when lending to you. However, if you’re in a pinch and the bank will only lend you $100,000 and you need $300,000; paying the higher interest rate now makes more sense than taking on multiple loans in lesser amounts as doing so would largely impact your monthly cash flow.
A Credit Union is another alternative to a bank that operates very differently
In that, a credit union is a type of financial co-operative that are often created by large corporations or organizations for their members or employees. The biggest difference being that the credit union is owned and operated by their members as a non-profit and because they’re not trying to satisfy shareholders they pass along the savings to their members. Meaning that you usually see lower rates when securing a mortgage from them with the comfort of knowing your application will be reviewed by a real person, not just a machine.
You could also look to a Mortgage Investment Company (MIC) for funding
A MIC which stands for Mortgage Investment Company is an umbrella investment company that specializes in funding mortgages. Shareholders invest money into the company jointly to fund a pool of mortgages and then the shareholders are paid a dividend on a regular basis. As new funds are added to the pool more mortgages are funded. It’s a win-win for both the investor and the new home owner. However, as MICs like a private lender take on more risk funding mortgages for entrepreneurs and those who can’t obtain a mortgage from a big box lender, they charge higher rates.
Lastly, you could seek out a private lender to fund the mortgage you need.
Similar to a MIC but on a much smaller scale. A private lender is a non-institutional individual or company that loans money to individuals and businesses that aren’t able to secure funding elsewhere. In order to have a private lender fund your mortgage, usually, there is a relationship of some sort between the person obtaining the loan and the lender though not always.
When it comes to securing a mortgage for your new dream home or even a mortgage for the new home of your business, there are many options available to you aside from the bank on the corner. Which is why it is important to take the time to meet with your mortgage broker to review your options, rates, and needs before deciding the best plan of action to take to secure the funding you need. In fact, if you’re looking at securing a new mortgage or your renewal date is around the corner please feel free to give me a call at 705-230-1306. I’m always happy to answer your questions while making the mortgage process as stress-free as possible.