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In Canada, Subprime mortgages are openly available for all types of applicants. Subprime Mortgages are mortgages where the interest rate on the note is higher throughout the term of the loan. They are intended for applicants with impaired credit scores and the higher interest rate is a compensation to the lender for accepting greater risk. With that being said, if you are interested in a Subprime Mortgage because you’d like to take out a loan but you aren’t having a lot of luck because of your credit score, Smarter Loans is able to help you acquire one in an efficient manner.
In Canada, Subprime Mortgages are easy to get as long as you are connecting with the right mortgage companies that deeply understand your needs. We are committed to helping you find a mortgage company that is able to offer you a Subprime Mortgage confidently, establishing both a mutually beneficial relationship while also solving your situation and unique set of needs. Subprime Mortgages are very common in Canada and we’ve taken the initiative of assembling a directory below that includes all of the top lenders for subprime mortgages all in a single directory. If it’s a subprime mortgage that you are interested in, all you need to do is scroll down and compare the terms, rates and offers in order to discern which one is best for you.
Keep in mind that the interest rate is higher than traditional mortgages, but if you are prepared then click “apply now” in order to proceed to a brief online application. You can also alternatively pre-apply with Smarter Loans and in that case, we’ll select a subprime mortgage on your behalf, then assign it to you.
We can help connect you with the top subprime mortgage providers in Canada.
A subprime mortgage is for borrowers who don’t meet the standard lending criteria. Alternative and private lenders offer subprime mortgage. Since subprime borrowers typically carry more risk, the rates tend to be higher and often come with a fee from subprime lenders.
Before approving you for a mortgage, lenders consider four main factors for borrowers: your income, down payment, credit and the property itself.
Credit is a common reason why you might seek out a subprime mortgage. If you have poor or damaged credit, prime lenders such as the big banks and credit unions might not consider you. That’s when you’ll need to seek out mortgage financing from a subprime lender to close the deal. If you’re new to Canada or lack a credit history, that’s when subprime mortgages can make sense, too.
Although poor credit is often the first thing that comes to mind for subprime mortgages, there are other reasons why you might seek them out. Ideally, when you’re applying for a mortgage, you’re a salaried employee who’s been with their employer for at least two years. Unfortunately, not everyone fits into that category. Some borrowers will need to use stated income (future income not yet earned) to qualify. Likewise, if you’re a business owner not showing very much income, you might need to go with a subprime lender because you don’t have enough income to qualify with a prime lender.
Your credit and income may be perfectly fine, but sometimes it’s the properly itself. If you’re buying a unique property type like a house boat or plot of land, prime lenders may not want to touch it, so subprime lending may be your only choice. Likewise, sometimes you make an offer on a property and the lender discovers issues during the appraisal, which can cause the property to move from the prime to subprime side.
Most borrowers don’t initially seek out subprime mortgages. It’s only when a prime lender that you might look at subprime mortgage financing turns you down.
The biggest benefit of a subprime mortgage is that it helps you close the deal. If prime lenders have turned you down, you might have no choice but to go with a subprime lender. By not seeking out financing from a subprime lender, more than likely you won’t close the deal. This can lead to devastating consequences. Not only might you not close on the deal, the home seller could end up suing you, along with the seller’s real estate agent.
When going with a subprime mortgage, it’s important to remember that it’s not forever. By rectifying the issue that caused you to go to the subprime space in the first place, you may be able to move into the prime space sooner rather than later. For example, if your credit score is low due to a high credit utilization, by paying down the outstanding balances on your credit card, you can help improve your credit score and perhaps qualify with a prime lender.
If you’ve been turned down for a mortgage by your bank or credit union, it might be time for you to consider a subprime mortgage. Borrowers with poor credit, a bankruptcy or consumer proposal in their past, uncertain income or the inability to provide traditional paystubs, or those seeking a mortgage on an unusual property might all struggle to gain approval from more traditional, risk-averse lenders. If this is you, a subprime mortgage can be a way to access mortgage funds.
Eligibility for a subprime mortgage is generally less strict than eligibility for a normal mortgage. Standard requirements include: Canadian residency, age of majority in your province, and a home to secure the mortgage against. As the value of the property is the most important factor with subprime mortgages, the home in question must be in a marketable urban area, to ensure resale value. Subprime mortgages tend to have minimal credit score requirements. Income level, proof of employment, size of down payment and existing debt levels are all also potential factors, but these generally affect the interest rates you can qualify for, rather than your eligibility in the subprime realm.
Subprime mortgages generally have higher interest rates than standard mortgages, to help offset the greater risk to the lender. However exact terms vary according to the lender’s products and the borrower’s individual circumstances. The average interest rate on a subprime mortgage tracks 1% to 3% higher than standard mortgages, and lenders usually require at least a 15% down payment. Subprime mortgages also tend to have higher fees than other mortgages, ranging from 2% to 3% of the borrowed amount. The life of the loan is usually fairly short in comparison to standard mortgages.
Your credit score, size of your down payment, existing debt, income level and other financial factors all affect what terms you will be able to get on a subprime mortgage, including the interest rate you qualify for. The length of the loan also affects interest rate, as does the choice between a fixed or variable rate. The lower your credit score, the higher your interest rate will be, and the greater your down payment, the lower your rate.
Applying for a subprime mortgage starts with gathering all of your financial documentation. You will need to be able to show ID, proof of address, information pertaining to the property being mortgaged (valuation, purchase details, etc.), financial statements indicating your assets and liabilities, previous tax returns to show income history, and paystubs or other proof of employment. Once you have gathered all of your information, you must complete an application form and submit to the lender for approval. Depending on the complexity of your situation, they may ask for other documents before making a decision.
Subprime lenders have something of a bad reputation, in part thanks to recent crises involving over-leveraged homeowners unable to pay their mortgages. This risk is borrower-centric though, and does not reflect on the safety or reputability of the lenders themselves. While there can be predatory lenders in the subprime market, seeking to exploit borrowers who have few other options with high interest rates and fees, there are also plenty of reputable subprime lenders who provide a valuable service to this segment of the population. Subprime mortgages are not however regulated by the federal government in the same way as standard mortgages, so it is up to the consumer to do their due diligence.
Although only 3% of Canadians fall into the “extreme risk” credit category of a score under 520, nearly 9% (3.5 million) of Canadians have subprime mortgages. This discrepancy highlights that it is not just poor credit that can lead borrowers to subprime lenders – many with good credit and non-traditional income revenues, or good credit and an unusual property are forced to use a subprime mortgage because of strict traditional mortgage requirements. This makes them a relatively common occurrence.
A subprime mortgage comes with risks, as does any form of debt. The greatest risk is affordability: as these loans have higher interest rates and fees than other mortgages, the risk to the borrower is greater in times of financial stress. Missing payments can lead to loan default and foreclosure. It is imperative to make sure you can afford any loan, but especially a mortgage, before agreeing to it.
Although subprime mortgages are tailored to those with poor credit, using a subprime mortgage to access a loan and then paying it off can actually help to repair your credit over the long term. Building a history of on-time payments and financial reliability will, over time, improve your credit score, and by using a subprime mortgage to do this, you may actually help yourself qualify for a regular mortgage in the future. This pendulum swings both ways though: if you miss payments on your subprime loan, it will have a negative effect on your credit.