Most Canadians go to their bank for a mortgage and do not consider other sources of funding for their home. This article will give you a brief description on the different sources and how you can leverage a mortgage broker to do all the finance "shopping" for you.
I am going to take a quick minute to explain a few terms:
Conventional mortgages – there is a minimum of 20% down, good credit, provable income.
High-ratio mortgages – when there is less than 20% down. In Canada, the minimum down payment is 5%.
Second Mortgage – when the client does not want to break the first mortgage in order to get additional cash out of their home, they get another mortgage. This is the second lien on the home.
Some of the different sources of funding are:
1. Chartered Banks – a large financer in the residential mortgage industry by far. They offer both conventional and insured high-ratio first mortgages.
2. Trust Companies and Mortgage Loan Companies – These lenders have traditionally been the leaders in residential mortgage financing. Most Mortgage Loan companies require you to work with them via a mortgage broker.
3. Life Insurance Companies – typically finance multi-residential and commercial properties.
4. Finance Companies – Offer conventional, high-ration and second mortgages. You must go through a mortgage broker to use their services.
5. Credit Unions – are more prominent in the smaller communities. They offer first, second and high-ratio mortgages.
6. Private Investors – individuals or small groups who have cash to lend. You must go through a mortgage broker for their services.
Is there a difference between the banks, trust companies and credit unions? Yes! The banks typically want the best credit and provable income clients. Trust companies and Credit Unions are more flexible with their requirements.
What is the difference between a conventional and high-ratio mortgage? From the borrower's perspective, there is little difference, but the Canadian legislation prohibits most financial institutions to lend more than 80% of the purchase price unless the mortgage is insured against any defaults. You as the borrower will be charged a fee for the default insurance.
Does every lender offer the same rate? NO! You need to shop around and this is where it is a great idea to work with a mortgage broker. They will search for the best mortgage for you.