Also known as a non-traditional or unconventional mortgage, an alternative mortgage is exactly that: an alternative to what is commonly referred to as a conventional (or traditional) mortgage. If you’re a potential homebuyer or existing homeowner who doesn’t meet traditional lending criteria, you may need an alternative mortgage lender in 2020.
Alternative home loans have become more common, particularly with the introduction of stricter mortgage rules including stress testing, which are making it more difficult to qualify for a conventional mortgage. In addition to not being able to pass the required stress test, other common factors that prevent homebuyers from obtaining a traditional home loan include low credit score; non-traditional income (eg, self-employed or part-time worker); lack of established/blemished credit; or insufficient employment history to demonstrate steady income (perhaps due to a new job). If any of these relate to your current situation, an alternative mortgage lender could be your best option.
On July 1st, 2020, a new set of mortgage rules for homeowner applications went into effect by one mortgage insurer – Canada Mortgage and Housing Corporation (CMHC). Thankfully, the two other insurers – Genworth Canada and Canada Guaranty – didn’t follow suit. Still, CMHC now requires applicants to have lower debt ratios (percentages used to assess the amount of money for which you qualify), higher credit scores, and restrictions from borrowing for down payment purposes. These changes further limit people from qualifying for traditional mortgages.
What’s an alternative mortgage lender?
Alternative mortgages are offered through alternative mortgage lenders, also known as ‘B’ mortgage lenders, who provide the same products as traditional, or ‘A’ mortgage lenders. There are some differences, however, especially when it comes to qualifying criteria that tend to be less strict with unconventional mortgage lenders (eg, they’ll still look at your credit score but it doesn’t have to be as high as required with a traditional lender).
An alternative mortgage also carries shorter loan terms (typically one to three years) and, while interest rates tend to be a bit higher, they offer greater flexibility. It’s also important to note that alternative mortgage lenders across Ontario are regulated financial institutions that are held to the same standards as conventional lenders.
Arash Sef has a broad range of affordable mortgage solutions to meet your unique borrowing needs.
Have questions about why you may need an alternative lender in 2020 or your mortgage in general? Answers are a call or email away.