Usually, when an individual has a low credit score, accessing loans and mortgages becomes very difficult.
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:
...pick the one thats right for you.
While the criteria for a subprime loan are laxer than a prime loan, there are still qualifications to get a subprime mortgage in Canada and a subprime mortgage in Toronto. First, you must be a Canadian resident and have the documentation to prove it. Next, your credit score needs to be somewhat fair, or around 560-659.
Subprime mortgages are usually for individuals with low credit ratings or incomes, but there are other reasons someone may turn to a subprime lender.
People with unusual occupations, such as freelancers or commission-based professionals, may also be turned down by A lenders due to unstable income or inability to submit standardized pay slips.
Applying for a subprime mortgage is similar to a conventional mortgage. You will be required to show documentation as proof that you can handle the payments, such as:
Like other loans, you are provided with different options regarding rate, amortization, term, and more. Here are the top 3 options:
Fixed-rate –
This is a loan where the interest rate and monthly payments stay the same for the mortgage duration. You won’t have to worry even if the prime lending rate increases since your rate is the same until you renew. These can last up to 40 to 50 years.
Variable-rate –
Some people can get lower interest rates by getting variable-rate mortgages. The interest rate adapts to a benchmark, such as the prime interest rate, which means that rates may fluctuate over time while monthly payments stay unchanged.
These also usually have shorter amortization terms, usually a max of 30 years.
Interest-only –
You pay only the interest on the loan for a set time. The benefit is that the first payments are less expensive because you don’t have to pay back the principal. However, monthly payments may increase significantly once the introductory period expires.
Are you self-employed, getting rejected by banks, or have had late payments, resulting in a low credit score? Despite what you may have heard, bad credit scores shouldn't stop you from buying a house.
Our goal here at Certified Mortgage Brokers is to help people in your situation navigate these financial obstacles so you can move into your dream home as soon as possible.
Our team of brokers can help you get accepted for a subprime mortgage in Canada and a subprime mortgage in Toronto, thanks to their extensive network and years of expertise.
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