Looking to purchase a property but don’t know if a bank will approve you? Many Canadians are turning to independent mortgage lenders, not because they have a bad credit, but because the approval processes are faster and lending has become easier.
Mortgage lenders come in many sizes, ranging from Royal Bank of Canada (the biggest in the country) to independent firms and tiny lenders.
When it comes to trusting a company with their largest debt, Canadians tended to opt for well-known financial institutions. Even when a smaller lender has tantalizing rates and the best terms, homeowners sometimes tend to avoid it if they don’t know the name. The main reason? They fear smaller lenders going out of business.
A report by Globe and Mail found that Canadians are afraid to commit to independent lenders because they are afraid they will be required to pay their mortgages in full if the company closes shop. However, in reality, that rarely happens.
Homeowners fail to realize that as long as they are considered a qualified borrower with provable income, they have nothing to worry about. In the unusual case that a private mortgage lender does go out of business, homeowners are protected by Canadian law that safeguards them from financial stress resulting from such a scenario.
Also, it should be noted that all private and/or independent lenders receive their funding from large financial institutions, and that funding is fairly stable. Even if a company were to run into financial difficulties, in most cases there are backup services in place.
If a lender were to close, another financial institution would simply take over the mortgage.
When a lender sells your mortgage to another party, you just keep making the same payments like nothing happened – albeit to a different company, in some cases. The new lender is generally required to honour the terms of your old mortgage contract.
Canadians today are becoming more comfortable with private lending companies rather than banks, as they are becoming more aware of their borrowing options. While some may choose a large credit union for branch accessibility or integrating their mortgage with banking, others may choose a private lender for personalized services and lender availability.