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Non-Prime Lenders Are Not Created Equal

Sept. 28, 2019
3 mins
Couple moving into their new apartment

These days, most non-prime mortgage rates are at least two to three percentage points above prime (bank) rates.

So, if you’re a mortgaged homeowner with credit problems, unprovable income or an abnormally high ratio of debt to income, you’ll want to get back to being a credit-worthy borrower fast. If you don’t, interest expense could suck the life out of you.

Some lenders make transitioning from blemished credit to good credit easier (and cheaper) than others. Home Trust is one of them.

If you’ve got credit problems and/or can’t pass the mortgage stress test and/or can’t prove your income, there are lots of lenders that might finance you. But almost no one offers the flexibility Home Trust does.

The company does things that most other lenders don’t, such as:

  • Allow much higher debt ratios, as opposed to the big banks which routinely cap people at 44% total debt service. (That means no more than 44% of your gross monthly income can be consumed by your monthly obligations). Home Trust goes well past 50% for non-prime borrowers.
  • Paying your default-insurance premium if you get a Genworth-insured “stated income” mortgage up to 70% loan-to-value (most competitors pay it up to 65% maximum).
  • Give reasonable insured rates to people with past bankruptcies (assuming two years of re-established good credit).
  • Offer “non-prime” mortgages and the option to switch to a low-cost prime mortgage (as long as you qualify) with no fees.

That last one should matter to less-creditworthy borrowers. Such folks typically get short-term “alternative” mortgages while they’re working to make themselves creditworthy (i.e., building their credit score, paying down their burdensome debts or creating a track record of provable income). When such homeowners are once again considered a prime borrower, they can then get cost-effective insured/insurable mortgages without changing lenders and paying legal, appraisal and discharge costs (which can be as high as $1,500).

Home Trust even lets such borrowers get great insured rates if their home is worth more than $1 million, the normal insured mortgage property value limit. The stipulation is that the property must have been “default insurable” at the time it was financed (e.g., if it was purchased before October 17, 2016, it likely qualifies).

The takeaway is this. If you:

  1. can’t get approved at a prime lender (e.g., major bank), and
  2. need a short-term mortgage while you get your financial life in order, and
  3. are comparing multiple willing lenders, then

consider a lender that offers both non-prime (alternative) mortgages and low-cost prime mortgages like Home Trust. If the rate and fees are low enough, pick a lender that offers both types of mortgages. It could save you money and time at renewal.

Rob McLister

Rob McLister has been informing mortgage consumers and professionals since 2007. In that time, he’s written more than 2,500 mortgage stories for publications ranging from the Globe and Mail — where he presently serves as mortgage columnist — to the National Post, Maclean’s, Canadian Mortgage Trends and Regularly quoted throughout the media, Rob is a committed advocate of greater transparency in the mortgage industry. He’s also been a vocal consumer advocate for more sensible mortgage regulation. In 2011, he launched two mortgage fintechs: mortgage comparison website and digital mortgage broker intelliMortgage Inc. The former is the go-to source of Canadian mortgage news and the only site comparing all publicly advertised prime mortgage rates. The latter is Canada's leading online mortgage provider for self-directed borrowers. Both companies were acquired in 2019 by RATESDOTCA Group Ltd.

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