Understanding What Unregulated Mortgage Market Means
Ever heard people speaking about an unregulated mortgage market? It is a market that comprises of lenders who are not within the purview of the banking regulators of Canada. They include private lenders who could be individuals or companies.
On the other hand, in a regulated mortgage market, lenders are regulated federally, and in Canada, by the OFSI (Office of the Superintendent of Financial Institutions). In that, the monoline lenders and banks follow the rules as set out by the OFSI. The changes made to the mortgage rules in the regulated market has caused many Canadians to turn to the unregulated market.
What are the characteristics of an Unregulated Mortgage?
• Operates Without Rules
When a private company or individual lends money to fund a mortgage, no, body governs the transactions. If a borrower defaults, then, the lender forecloses. However, the standard law applies, and if a dispute arises between the parties, it becomes a civil matter.
• Operates for a Short-term
Private mortgages often last over a short span. Typically, between 1 to 3 years. Such lenders don’t focus solely on the credit history of the borrower. Several others factors matter when reviewing your application. That includes marketability and the overall value of your property.
• Higher Interest Rates
Due to the risk of lending money to a borrower, these mortgages are usually offered at a higher interest rate than a typical mortgage. As the borrower, you will have to make monthly payments on the interest. It is so because private mortgages are interest-only loans.
Nevertheless, you will still owe the lender the full principal amount, at the end of the term of the mortgage contract.
The general guidelines that govern lending may exclude many potential borrowers who can pay back their loans. That’s where private lenders come in. Suffice to say; the unregulated market is growing.
And as it becomes more difficult to qualify for a traditional mortgage, many Canadians are opting for the unregulated market. Feel free to reach out to us at Expert Financial Corp, for your mortgage needs or consultation.