Photo: James Bombales
When a new mortgage stress test for uninsured home buyers came into effect in January, many industry watchers predicted that private loans would soar. And, according to a new report, that’s exactly what’s happened.
Private lenders made up 20 percent of mortgage refinancing deals in Toronto in Q2 of 2018, up 67 percent from two years ago, according to a new joint-report from online brokerage Realosophy and real estate data provider Teranet.
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“Private lenders serve as the lender of last resort for most home buyers and owners,” writes Realosophy president John Pasalis, in the report. “People who don’t qualify under a traditional bank’s strict lending guidelines can borrow money from the private market where the stress tests don’t apply.”
Along with stricter mortgage rules, higher interest rates have also put pressure on homeowners, many of whom have seen their mortgage rates hiked in line with the overnight rate.
Pasalis says one of the issues with the rise in private loans is the risk it poses to homeowners.
“The one problem with borrowing from private lenders is that the interest rates they charge are much higher than traditional banks — interest rates can range from 7 to 20 percent, depending on the property and the borrower,” he writes.
While private loans can seem tempting to those unable to turn to the big banks for help, Pasalis warns about becoming overly reliant on the private market.
“Homeowners struggling to make ends meet today need a plan that does not include turning to high interest private debt,” he writes. “In this late stage of Canada’s housing and credit cycle where house prices are moderating and interest rates are rising it’s not the time to be increasing your overall debt load — it’s time to deleverage.”