While this doesn’t come as any big surprise to me that mortgage holders want to secure the lowest interest rate possible, the idea of finding the best residential mortgage rate through just surfing the web does.. a bit.
Depending on who you are talking to, there are many different pieces of advise you can expect to find when it comes to interest rate shopping. While I don’t plan to cover off any type of fool proof approach, here are some things to consider.
First of all, its going to be unlikely that you’re going to be able to find the best rate by just surfing the web.
Why? Several reasons. First, there can be significant differences between the posted rate and the actual rate the lender is prepared to provide. Second, regardless of what rate is posted, you still need to qualify for it and there is no guarantee that you will still get the rate shown on a web page. Third, posted rates through an individual lender will only show their best rate which may not be the best in the market. Fourth, broker posted rates will only cover off the lenders they are dealing with which again may not cover off the entire market of mortgage lenders that are directly relevant to your situation.
In order to be able to zero in on the best available rates for your particular scenario, you would be well advised to work with an experienced mortgage broker who has broad access to lenders in the market place, and who maintains a good pulse of where the best deals can be found at a given point in time.
There are other things to consider such as not requesting maximum mortgage amounts. The more equity that is available post mortgage, the less risk being borne by the lender, which should equate to a lower interest rate offering.
Lastly, start the process of looking for the best home mortgage rate early and allow ample time for the process to be completed. The market can change suddenly, providing short term opportunities that you can take advantage of, if you’re ready to take advantage of them and understand a good deal when it presents itself.
If you’d like help locating and securing the best home mortgage rates on the market, please give me a call and we’ll go through your requirements and the available options together.
Another misconception is that all private mortgages are going to carry very high rates of interest that should only be considered as a last resort.
Let’s look at each of these in a bit more deal.
Will private lenders provide some amount of mortgage financing on just about any type of real estate or real estate based project.
The answer is clearly No for many of the same reasons that a bank or institutional lender would not be interested in the property…is there any known or potential environmental liability associated with the property? Is there an active resale market for the property? How much of a headache is the borrower going to be in terms of making payments? What is the exit strategy to repay the mortgage at the end of the loan term?
While private lenders are prepared to take on more risk when borrowers have weak credit or thin repayment, they are still looking for good properties to invest in that have some type of active market for resale if required.
With the tightening up of environmental laws as just one example, private lenders are now asking for environmental audits just like the banks and many times won’t consider a property without an environmental report that can provide a no risk or low risk opinion by a qualified auditor.
Its not unusual to find that no one is prepared to lend anything on certain properties in certain areas at certain points in time at any lending rate.
In terms of interest rates, the private mortgage financing space has become more and more competitive in recent years, especially for lower risk properties that are of higher quality and higher marketability. In many cases, private rates can come very close to bank rates and while private lenders are not typically a long term financing solution, they can be an excellent short term financing solution that is actually easier on the cash flow when interest only payments are required at competitive rates.
Higher interest rates are based on higher risk and less lending competition. If you’re property falls into the high risk, low competition category, then yes, you can expect to be paying pretty high interest rates on a private mortgage, provided there is a private lender prepared to extend financing.
Because there is also such a broad and wide spectrum of private lenders, that it can be easy to get a less competitive private mortgage offering that what may exist for your property and financial profile.
The best way to get the best available deal is to work with a Toronto mortgage broker that has direct access to large number of private mortgage lenders.
There is no question that the Canadian residential mortgage market, similar to the home mortgage markets in other countries can be an extremely lucrative financing market due to its size and importance to the overall economy.
As a result, there are many mortgage lenders out there focusing on a different slice in the market to pry more and more market share away from the big banks and to get their own share of the mortgage pie.
When the market is functioning properly, this competitive diversity in residential mortgage programs provides you the consumer with high competitive offers for “A” credit deals and a wide spectrum of offers and choices for those situations that do not fit the prototypical single family mortgage financing scenario.
When the market is in dysfunction, like we’re seeing in most of the world these days, the smaller niche lenders tend to leave the market and the larger lenders become more constrictive with respect to their offerings and their willingness to issue mortgage commitments on demand.
Fortunately for Canadians, the Canadian mortgage market has held together during turbulent financial times in the global markets. Other than a few changes here and there to lending terms and mortgage insurance programs, the market has not changed a great deal in terms of competition and available programs.
As Canadians, this is something we now largely take for granted. But if you spend any time reading the paper or surfing the financial reports on the web, you’ll quickly discover that other parts of the world can now only wish for the type of system and residential mortgage market options we are all afforded here in Canada.
Mortgage lenders are undoubtedly reading the same stuff and will likely continue to make tweaks and changes that take risk out of the market and maintain a healthy environmental for competition, or at least we all hope they do.
The point here is that regardless of how you may be impacted by subtle changes in the mortgage rules and regulations from time to time, there is greater access to residential home mortgage financing here than anywhere else and that we are blessed with a wealth of choices that are easily taken for granted.
The best way to make sure you are fully utilizing the available mortgage market resources and home mortgage programs to their fullest is to work with a Toronto mortgage broker who can assess your requirements and situation and guide you through the programs most relevant to you in the market at a given point in time.
Unlike bank and commercial mortgage lenders where there may not a lot of variation in rates and terms for a given mortgage request, private mortgage lending can have extreme differences in rates and terms among different lenders.
First of all, in terms of interest rates, different private lenders will be trying to secure a different interest return on mortgage funds extended, sometimes with no allowance for differences in risk. Some private lenders are only going to lend their money out at 12% while still others will adjust the rate according to the quality of the application and the related risk of providing financing for a particular situation.
The challenge for the borrower is to know what is competitive and what is not for a given scenario. For very competitive properties, you may be able to secure private mortgage financing anywhere from 6% to 12% and anywhere in between. The key here is that the property and financing scenario needs to be very attractive to the lender to create the opportunity for access to the lower private mortgage lending rates. The challenge is trying to find that source or sources of private funds that can offer lower rates for lower risk.
At the same time, if a property is not very competitive in terms of lender interest, any private mortgage deal that you can find may end up being the best you can do, regardless of interest rate.
With respect to private mortgage terms and conditions, some private lenders will only consider one year terms, others will look at longer interest periods. Some will renew for additional years, but only after you pay a renewal fee while others will provide renewals for no renewal fees. And still further, the renewal fees can vary considerably from one lender to the next.
For early repayment, the average private lender will charge a 3 month interest penalty, some will consider the mortgage as open from the outset or after a certain period of time with no prepayment penalties.
The point here is there exists a lot of variability in private mortgage financing commitments. The better the property and the more time you have to work with, the better the deal you’re likely going to secure.
In order to quickly figure out where you’re private mortgage lending request fits into the market place, you’re well advised to work with a Toronto Mortgage Broker who has great access to a broad spectrum of private mortgage lenders that are interested in financing the type of property you’re working with.
This week most of the major banks in Canada announced that they are going to be dropping the amortization period on residential property mortgages from 35 years to 30 years during April of 2011 regardless if the mortgage falls into the high ratio or low ratio mortgage categories.
While not all primary mortgage lenders have announced this change, you can expect that the industry, as it typically does, will have all members follow suit, especially after such a significant change in the mortgage lending policy.
This move along with several others this year already announced by CMHC on the insured mortgage lending front, continue to demonstrate that the Canadian market is concerned about the massive fall out in residential property financing all over the world and do not want to fallow suit.
Well established financial markets in the U.S. and U.K. have both recently tanked, clearly demonstrating to all along the way that first world financial economies are not immune to massive fall out in the residential mortgage markets.
From a consumer point of view, this means more cash flow is going to need to be available to qualify for mortgages of any risk level when a long term amortization period is being sought.
In the big scheme of things, this is still going to likely only have a significant impact on small percentage of the market, but taken it collectively with the other changes that have occurred and its now becoming a bit more difficult to get a residential mortgage in Canada.
At the same time, statistics show that borrowers on average are becoming more proactive with their long term debt load and are paying down more principal ahead of schedule than in any previous time in the past, speaking to a change in consumer perception about debt as well.
And even though the Canadian market has been able to weather the global economic storm better than most, you can expect that further tweets and adjustments may still be coming in the future to provide further stability to the overall market.
If you’d like more information on mortgage amortization terms and how they may impact your mortgage or future plans, give me a call and we can discuss your situation in sufficient detail.
One of the key benefits of a private mortgage that we don’t speak about a lot is the fact that the mortgage is provided by an individual or small group, and that, for the right price, a commitment to fund can be developed or customized to fit a whole host of situations and circumstances.
Cheaper residential mortgage money provided through bank and institutional lenders is based on mass production lending criteria for the most part, where the requirements are pretty cut and dry, especially for the “A”mortgage business. The goal is to process quickly, close quickly, and build the lending portfolio, which is profitable as a commodity in volume and relatively small margins where the risk of loss is very low.
When a borrower’s circumstances are not straightforward, it can be challenging at times to fit into the world of institutional lending due to the cookie cutter approach they take.
This is where private mortgage financing can be an incredibly valuable tool to acquire residential or commercial financing for a short period of time.
A private mortgage lender has the ability to look at the information on a whole and make their own lending decision, which at times is based on lender experience and market knowledge as much as it is specific lending criteria.
And when a deal morphs in form from the time a mortgage commitment is secured to the time it has to fund, it can be difficult to get a bank or an institutional lender to adapt their commitment or even continue on with the application. While there is no guarantee that a private mortgage lender will always be able to adapt to twists and turns a particular deal may encounter, there is a much better chance that something can be worked out, especially when the decision making is held by one individual versus a larger organization with lots of rules and requirements.
Part of the reason a private mortgage lender can be flexible is that its worth their while to do so. In most cases, any form of customized private mortgage lending solution is going to come at some type of premium. But if the added cost saves a deal or equity from being lost, then the borrower is still better off with a higher cost mortgage, especially if its the only option available in the time the applicant has to work with.
If you have a residential mortgage or commercial mortgage financing scenario that is not fitting into a conventional mortgage program, I suggest that you give me a call and lets see if we can come up with a private mortgage solution for you to consider.
I’ve written previously that private mortgage lending has become a very popular and growing target for investors to place their money these days. There are too many people with the same sad story about how they gave a stock broker a big pile of money and he turned it into a smaller pile over the last ten years. While the stock market will always be a highly lucrative investment vehicle, it comes with considerable risk of loss.
Many investors, especially those that have lost a few or more dollars, see mortgage financing, where hard security in the form of real estate is involved, a welcome opportunity to invest money.
And just because someone is investing in mortgages doesn’t mean they can’t make very good money. High returns are going to be connected to higher risk, but when you compare risk levels between the stock market and mortgage market there appears to be quite a disparity going on these days. Obviously there will be opinions on both sides of this one, but for many, hard security, even at higher risk is a better approach than buying stocks.
Regardless of the point of view or motivation, more private lenders are coming into the market.
There are basically three types of private lenders in the market place. The first type or category is the traditional private lender who is an individual investor, placing their money through their lawyer or a combination of mortgage broker and lawyer.
The second category are small groups of individual private lenders that either operate as small self managed investor group or syndicate deals whereby each private lender will take on part of a larger mortgage.
The third category is mortgage investment corporations or MIC’s. These are larger organizations that attract investor funds strictly for the purposes of investing in real estate mortgages. The investors are paid a return on their investment once the MIC’s management fee has been paid out.
There are a number of positive benefits to borrowers from the rise in private lending.
First, more private funds are available at a time when bank financing can be hard to secure, providing higher quality deals for privates to consider. For the more conservative private lenders, the rates offered can be very close to bank or institutional rates, providing some interesting short term options for those that may qualify or just fall short of conventional bank financing.
Second, in the past private lenders tended to be very regionally focused around areas where they were situated and had a good working knowledge of the market. Now some of the mortgage investment corps provide regional, provincial, and even national coverage in some cases. And even though individual private lenders are still pretty localized in terms of the opportunities they will consider, there’s a lot more of them out there in total, so more local areas now have access to private funds.
There is no real answer to this. Its all about choice and the more choice you have the better. At the same time, there can be large disparities from one private lender to another, so its also easy to secure a less than optimal deal for you situation without knowing any better.
The best way to approach securing a private mortgage is to work through an experienced Toronto mortgage broker who can quickly assess your situation and provide you with options for your immediate consideration.
I work with a large number of private lenders and would welcome the opportunity to discuss a private mortgage financing need you may have.
The five year bond rate was on the way up last week.
The most recent job report provided better than expected news about the creation of new jobs in the current economy, putting still more upward pressure on 5 year bonds.
What does this mean for a mortgage holder?
Mortgage financing companies make their money on a spread or profit margin between their cost of money and the cost they lend it out to you. In order to maintain their profit spread, they increase their lending rates when their cost of funds goes up. The current financial market indications are that their cost of money is in the process of going up.
While the money supply dynamics are much more complex that what I just stated, when key economic indicators are moving up like job growth and the 5 year bond rate, there is a growing possibility that the cost of borrowing in the Canadian residential mortgage market will also increase.
In the short term, there is little to suggest that short term rates are going to be changing, but then again…
The near term risk if you will is that long term rates are going to rise.
So if you’re considering a long term mortgage rate for a new purchase or refinance or interest term renewal, then now might be a good time to go through the exercise of seeing what’s available and what will provide the best fit for your mortgage requirements.
One of the best strategies to take to protect yourself from interest rate increases during a decision making period is to apply for financing and get a 120 day rate hold. This will give you time to figure out what you want to do and also to see where indeed the market is headed in the short term. One great thing about a rate hold is, if in the unlikely event that rates went down in the near term, you could still take advantage of that was well.
The best approach to working through a residential or commercial mortgage rate decision is to work with an experienced mortgage broker who can walk you through the different options and strategies that are available to you.
With all that’s happened over the last two years in the mortgage market to the south, the ripple effect still hits the Canadian shores from time to time. Some of the sub prime mortgage lenders in the states have also been operating in Canada. And for the ones that have not been able to survive the impacts of the recent economic turmoil in the U.S. housing market, their financial down has had direct impact on Canadian mortgage holders as well.
The result has seen mortgage holders forced into a situation where they must repay their existing mortgage in a market that doesn’t always provide any easily visible options.
For example, say that you were able to secure a high ratio mortgage 5 years ago on average credit from a sub prime lender and during the 5 years you never missed a payment. But one of the reasons you were dealing with a sub prime lender was due to some combination of credit and repayment history. Now, 5 years later, the mortgage is being called, real estate values in your area may have dropped, and you’re still in need of a high ratio sub prime lending product that may no longer exist in the market.
So what do you do?
There are a number of different mortgage refinancing strategies that can be considered, each will depend on what you have to work with and the mandate of the mortgage lender that is rapidly moving through collection to foreclosure.
You could look at paying out the mortgage in full, offering a settlement, purchasing the mortgage, or financing the mortgage itself.
The first thing you may want to consider is getting some legal advice from a real estate lawyer with experience dealing with these types of situations.
The second thing you might want to look at is finding an experienced mortgage broker who also has had experience with these types of financing scenarios. The mortgage broker would likely have very good access to private mortgage financing sources as this could very well be the only option available to you.
Working through the different scenarios with the right expertise can not only save you a bunch of time, but can potentially lead to a solution that doesn’t involve losing your home.
If you have a tough refinancing scenario such as what’s described above, or some other variation, please give me a call so we can further discuss potential options you can consider.