There is no question that it is more difficult to qualify for a mortgage now than ever before.
Lenders are taking extreme caution whether you are purchasing a new home or wishing to make adjustments to your current mortgage.
The COVID Pandemic has not been seen before and so there are many unknowns. Canada and British Columbia in particular, are doing very well in comparison to other parts of the world but that doesn’t mean we aren’t immune to a “second wave” this fall/winter.
Because of the uncertainty, traditional mortgage lenders such as banks, credit unions, and mortgage finance companies, are scrutinizing their own customers as well as new customers to mitigate as much risk as possible.
The last thing they want is to extend financing to a fellow Canadian when their job or industry may be in jeopardy. For example, mortgage lenders are going to favour applicants who may be an essential service such as health care, construction, or finance to name a few. If, however, you fall into the category of a non-essential service such as a beauty professional or film worker, the lender may be more inclined to pass on the mortgage application in fear of potential late or missed mortgage payments.
How To Qualify For A Mortgage During The COVID Pandemic
If you are currently laid off, have deferred mortgage payments, or are a “non-essential” worker, it may be challenging to qualify for any mortgage changes with your bank.
Still, it may be important that you have access to your home equity to help with things like credit card bills, loan payments, children’s tuition, and everyday expenses.
When your bank or mortgage lender says “no”, it’s time to consider alternative options.
Alternative Mortgage Solutions
Many Canadian mortgage lenders, usually only accessible by licensed Mortgage Advisors, offer specialized products and programs for those denied by the banks.
While you still need to qualify based on your income, credit, and available equity, they take a more common-sense approach. Banks and credit unions don’t have this flexibility as they are required to follow rigid lending guidelines imposed by a department of the Canadian government known as the Office Of The Superintendent Of Financial Institutions or OSFI for short.
Alternative, or “B” mortgages as they are sometimes called, typically come with 1, 2, or 3-year terms. They are intended to be shorter-term solutions and the goal is to transfer the mortgage back to a more traditional lender when eligible.
Home Equity Loans And Second Mortgages
Home Equity Loans come in the form of 1st and 2nd mortgages. These products are often heavily based on your available home equity rather than your income or credit.
The interest rates and setup costs will be higher than the bank and “B” mortgages due to the loan approval flexibility.
Such products are commonly offered with 1-2 year terms. Similar to “B” mortgages, these solutions are intended to offer immediate help or relief but shouldn’t be leveraged as a long term plan.
If you need or want to renew the mortgage once the term has expired, the lender, in most cases, will be happy to do so.
Once you are in a position to qualify again with a bank or credit union, the loan is then transferred over and at more competitive interest rates.
Second Mortgages
Second Mortgages are one of the most common types of home equity financing we see today.
They are a great solution when it just doesn’t make sense to pay out your first mortgage that is likely benefiting from a low-interest rate and reasonable monthly payment.
Let’s say you needed $40,000 to pay off a few debts and wanted to put some cash in the bank during this unstable economic time.
If the penalty is $10,000 to break the first mortgage to add $40,000, it wouldn’t make much sense.
We would then consider a small second mortgage for $40,000 which allows us to leave the first mortgage untouched.
Second mortgages are more expensive to arrange than the aforementioned options but the net result can be cheaper, especially when we get to avoid paying a large penalty.
For more detailed information on Home Equity Loans and Second Mortgages, please CLICK HERE.
How Do You Know If A Home Equity Loan Is Right For You?
Every situation is different and requires the attention of an experienced and licensed Mortgage Advisor.
The best place to start with a complimentary 15 Minute Phone Consult. We will listen to your needs and help to determine if a Home Equity Loan is the right fit or if we need to consider another strategy.
Please do not wait until it’s too late. The best strategy of all is to speak with a Mortgage Advisor before you are in a pinch. This will give you the maximum amount of solutions possible. If you wait too long, your choices will be limited and can then get very expensive and stressful.
Please contact us with any questions at any time and we will be happy to help.
Keep safe and stay healthy!
