The hot housing market and low interest rates have led to more people entering the market for real estate. To help keep things in check, Canadian policymakers have slowly tightened the rules around mortgages over the past two years. What it means for first-time buyers and established homeowners is that it may be more difficult to get mortgage approval from your bank. Fortunately, there are other options out there - so if your application is rejected, your next call should be to a mortgage broker.
Why We Need Mortgage Rules
Mortgage debt in Canada is higher than at any other time in history, and Canada has one of the highest amounts of mortgage debt of any developed country. This has prompted policymakers to change the rules around mortgage approval to ensure that Canadians taking on the debt are more likely to afford it. Rules like the mortgage stress test are put in place to help protect homeowners from getting stuck with mortgages they cannot afford in the future. Other criteria with the same goal involves limiting loan-to-value ratios and debt service levels.
But the World is a Different Place
While the rules have become more strict, the financial circumstances have also changed for many Canadians. The pandemic and the "Great Resignation" mean that people may be making less money or that the nature of their income has changed. Whatever the reason, they may now be seen as more of a risk in the eyes of creditors.
Approval Is More Difficult but not Impossible
Meanwhile, house prices continue to rise. Interest rates are also likely to begin to rise as well. If you are buying a home for the first time, moving houses, or moving your mortgage, you may encounter problems meeting the bank's criteria for mortgage approval. You could use some help from a professional - a mortgage professional.
Your First Call Should be to a Mortgage Broker
If the bank turns you down for a mortgage, you still have plenty of options. Your first call should be to a mortgage broker who is highly trained and knows the intricacies of the mortgage process. Your broker will assess your financial situation, look at your credit history and gather other details about your income and debts. Your broker can find out why the bank rejected your application then provide you with alternative options.
First, your broker may recommend making some changes to ensure you can meet the bank's criteria. That could include paying off or consolidating some debts, increasing your down payment or working towards repairing your credit rating. Alternatively, mortgage brokers can match you with a lender that does not need to follow strict regulations.
Mortgage Brokers Work for You
Mortgage brokers can also shop around among various lending partners to ensure that the interest rates you are offered and the mortgage terms are favourable to your financial situation. Once a lender is identified, your broker will ensure that the arrangement is secure for both you and the lender.
The Only Constant is Change
Alternative and private lenders may be a viable solution for you when you are unable to get a mortgage from a bank or other financial institution. They often come with higher interest rates. However, private or alternative lenders don't have to be a long-term solution.
As the prime lending rate fluctuates, the economy ebbs and flows and your financial needs change, so will your mortgage needs. A mortgage broker is always there for you to ensure you have the right mortgage for your current situation and your long-term goals. Don't wait for the bank to say no, get in touch with us and get started on the road to finding the right features, repayment terms and the best interest rate among available options.