Real Estate Market
May 24, 2022 Interest in mortgages from alternative lenders up as rates rise: Brokers
TORONTO -- Canadian homebuyers are increasingly considering credit unions and private lenders to secure mortgages as rates rise, brokers say.
They are seeing more Canadians drawn to these lenders as fixed mortgage rates have crept to about four per cent in recent months in many provinces and territories.
Because the qualifying rate on uninsured mortgages under Canada's stress test is either two percentage points above the contract rate, or 5.25 per cent, whichever is greater, more borrowers are now having to qualify at a higher rate for mortgages from traditional lenders like banks.
However, credit unions and private lenders are often able to offer more competitive rates, even to clients who don't qualify for mortgages offered by traditional lenders.
"If a client's looking for a five-year, fixed rate mortgage, they're now qualifying (with traditional lenders) at say 6 or 6.5 per cent, which really reduces the total amount that they could qualify for," said Sung Lee, a Toronto mortgage broker.
"With credit unions, they offer more flexibility, where you could qualify at just your five-year contract rate or in some cases, if it's a variable, like a contract (rate) plus one (per cent)."
Insurance and financial website Ratesdotca says credit unions and private lenders made up about 3.7 per cent of the country's mortgage business last year and have already handled about 6.7 per cent so far this year.
Credit unions are typically responsible to members instead of shareholders and though they offer similar products to banks, they are not subjectto the same federalregulations, including qualifying rate restrictions, allowing them to take on riskier customers.
The varying interest comes as the Canadian Real Estate Association (CREA) said the national average home price was slightly higher than $746,000 in April, up 7.4 per cent from about $695,000 during the same month last year.
However, on a seasonally adjusted basis the national average home price slid by 3.8 per cent to $741,517 last month from $771,125 in March.
CREA attributed much of the slowdown to fixed mortgage rates, which have been on the rise since 2021, but have been more impactful in recent months.
"Everyone's all worried about the rates ... because we've been accustomed to really low rates for a long time and probably for the last 10 years they've been under four per cent," said Chantal Driscoll, a Burlington, Ont. mortgage broker with RDM Financial Consultants.
"People are getting nervous, but traditionally mortgages should be between four and six per cent. Those are normal mortgage rates."
Anytime mortgage rates edge up and qualifying for a mortgage becomes harder, she notices a "trickle down" effect on credit unions and private lenders, but current conditions aren't pushing interest in these lenders beyond what she usually sees, when the market shifts.
However, she is seeing more interest from people who are not qualifying for mortgages from traditional sources.
"They'll go to ... credit unions or private lenders to qualify a little more than what they'd qualify for with the bank," said Driscoll.
Most of her clients are still managing to qualify under current conditions or through variable rates, even as they also rise, but Driscoll foresees change.
She believes brokers may be fielding even more requests for alternative mortgages in the future because at least one credit union has upped their requirements so all borrowers have to qualify at two per cent higher than the contract or the benchmark rate, whichever is higher.
Meanwhile, Nick Hill has seen a steady stream of interest around credit unions from his clients -- and not just ones who are having trouble qualifying.
"I did two deals for people who work at car dealerships," said the Toronto broker with G&H Mortgage Group.
They qualified for a traditional loan but found better rates through a credit union.
Economists forecast rates will jump by another half percentage point next week — cooling Canada’s housing market even more
Wealthier clients crowding out first-time buyers
Federal government will pay up to $5,000 if you make your home more energy efficient
The government of Canada is launching a new program today that offers Canadians grants of up to $5,000 to pay for energy-saving home upgrades.
Prime Minister Justin Trudeau and Natural Resources Minister Seamus O'Regan rolled out the Canada Greener Homes Grants program today — worth about $2.6 billion over seven years — to help homeowners upgrade heaters, install solar panels and replace windows and doors.
"As a country, every effort counts to keep our air clean and our environment healthy," Trudeau said Thursday. "We know that these retrofits can sometimes be out of reach, so our government is now making them more affordable for Canadians."
Homeowners will be able to receive grants of up to $5,000 to make energy efficient retrofits to their primary residences, and up to $600 to help with the cost of home energy evaluations.
Trudeau said the grants will help 700,000 homeowners lower their bills and keep their houses warmer in the winter.
People across the country are able to apply online starting today (the government says the landing page for applications was down earlier today due to high demand). An application starts with an energy evaluation by a certified adviser. That adviser visits an applicant's home and determines which energy-saving measures would qualify for reimbursement.
If the homeowner chooses to proceed, a licensed contractor would then be hired to conduct the retrofits. After an inspection of the completed work, the homeowner would be reimbursed.
It's estimated that private homes and buildings are among the largest sources of carbon emissions in Canada, contributing about 18 per cent of the country's emissions.
Last week,it's providing up to $10 million to recruit, train and mentor 2,000 people to conduct energy audits.
WATCH | Prime minister unveils $2.6 billion home retrofit program