(Toronto) Homebuyers across the country are increasingly turning to credit unions and private lenders for mortgages as rates rise, and mortgage brokers are watching.
These experts point out that Canadians are now more attracted to these alternative lenders than before because fixed mortgage rates have reached and slightly exceeded the 4.0% threshold in recent months in many provinces and territories.
At traditional lenders, borrowers must now qualify for a mortgage at a higher rate, because the qualifying rate on unsecured mortgages under Canada’s stress test is two percentage points above the contractual rate, i.e., 5.25%, whichever is higher.
However, credit unions and private lenders can often offer more competitive rates, even to customers who don’t qualify for mortgages offered by traditional lenders.
“If a customer is looking for a five-year fixed-rate mortgage, they are now eligible (with traditional lenders) for, say, 6.0% or 6.5%, which lowers the total amount they could qualify for,” explained Sung Lee, a Toronto Mortgage Broker.
“Credit unions offer more flexibility, you may only qualify for your five-year contract rate, or in some cases, if it’s a variable rate, the contract (rate) plus one (percentage point). »
Insurance and finance website Ratesdotca says credit unions and private lenders accounted for about 3.7% of the country’s mortgages last year, but have already processed about 6.7% of activity in the country. so far this year.
Credit unions are generally beholden to their members rather than their shareholders, and while they offer similar products to banks, they are not subject to the same federal regulations, including allowable rate restrictions, which allow them to accept clients considered riskier.
Meanwhile, the Canadian Real Estate Association (CREA) recently reported that the national median home price topped $746,000 in April, up 7.4% from $695,000 in the same month last year. last.
However, on a seasonally adjusted basis, the national median home price fell 3.8% to $741,517 last month from $771,125 in March.
CREA attributed much of the slowdown to fixed mortgage rates, which have been rising since 2021 but have had a bigger impact in recent months.
“Everyone is worried about interest rates […] because we’ve been used to very low rates for a long time, and they’ve been below 4.0% for probably 10 years,” said mortgage broker Chantal Driscoll of RDM Financial Consultants in Burlington, Ontario.
People are getting nervous, but traditionally mortgages should be between 4.0% and 6.0%. These are normal mortgage rates.
Chantal Driscoll of RDM Financial Consultants
A usual “runoff”
Every time mortgage rates rise slightly and qualifying for a mortgage becomes more difficult, she sees a “leakage” effect on credit unions and private lenders, but current conditions are not driving interest at these lenders. beyond what you normally see when the market changes.
However, you are seeing increased interest from people who don’t qualify for mortgages from traditional sources.
“They are going to […] credit unions or private lenders to qualify for slightly higher amounts than they would qualify with the bank,” said Ms.I Driscoll.
Most of your clients still manage to qualify under current conditions or through variable rates, although they also increase, MI Driscoll hopes to see changes.
She believes brokers may see even more applications for alternative mortgages in the future, as at least one credit union has raised its requirements so that all borrowers must qualify two percentage points higher than the contract or benchmark rate. , whichever is greater.
Meanwhile, Nick Hill has seen a steady stream of interest in credit unions from their customers, and not just those struggling to qualify.
“I have completed two transactions for people who work at car dealerships,” Toronto-based broker G&H Mortgage Group said. They qualified for a traditional loan but found better rates through a credit union. »
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