Everybody deserves a place they can call home. Unfortunately, not everyone can qualify for a mortgage loan with Canada’s major banks or ‘A’ lenders. There are many reasons why ‘A’ lenders could reject a mortgage application, but the main reason is usually the borrower’s credit score, or that their income is insufficient to qualify for a loan.
These rejected applications are then considered to be subprime. However, it does not mean that owning a home is no longer possible for these applicants. They can still turn to a subprime lender or ‘B’ lenders.
While a subprime mortgage in Canada is gaining traction, it’s important to know all the factors involved before making such a big financial decision.
A subprime mortgage is a loan issued to those at a higher risk of defaulting on the loan, whereas a prime mortgage is given to good payers or those with higher credit scores.
“Subprime” refers to applicants with bad credit scores. In 2020, the Canada Mortgage and Housing Corporation (CMHC) raised the minimum credit score requirement from 600 to 680, and if you’re looking for a loan with a score below this, you’ll have to connect with a B lender.
The 2008 financial crisis gave subprime mortgages a bad reputation in the eyes of both the media and consumers and led to one of the worst recessions in US history.
Fortunately, subprime mortgages in Canada didn’t catch on the way they did in the US. They exist, but a subprime mortgage in Toronto or Canada is too highly regulated to cause the same issues.
Subprime mortgages have many associated benefits, making them a good option for some people. These benefits include:
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