The Truth about Mortgage Lenders
Choosing the right mortgage lender for your financial situation can be a tricky task. It’s important to be fully informed before accepting a mortgage contract—any mistakes in the management of your mortgage could prevent your property from generating income and becoming truly profitable. Here are some important things to consider when choosing a mortgage lender.
Mortgage Lender Regulations
The most common mortgage lenders in the country are chartered banks, which according to the Canada Mortgage and Housing Corporation (CMHC) hold 74.6% of total outstanding residential mortgages as of February 2013. The remaining mortgage lenders include life insurance companies, pension plans, trust and loan companies and non-depository financial institutions.
All of these different mortgage lenders are supervised by the Office of the Superintendent of Financial Institutions (OSFI). This regulatory body imposes certain regulations that ensure that mortgage lenders practice non-risky financial activities. OSFI strives for market transparency and careful risk management. OFSI also works closely with commercial banks, which are under provincial jurisdiction, as well as provincial mortgage brokers to ensure fair business practices are being followed.
Residential Mortgage Underwriting Practices and Procedures
In June 2012, OFSI created the Residential Mortgage Underwriting Practices and Procedures, which applied to all federally-regulated financial institutions. The purpose of this policy is to regulate the process of mortgage underwriting and the acquisition of mortgage assets in Canada. The guideline outlined many mortgage lending principals, including the following:
- Mortgage lenders must perform due diligence in terms of borrower’s background and willingness to service debts.
- Mortgage lenders must assess borrower’s capacity to meet debt obligations.
- There must be risk management services to support mortgage underwriting, such as mortgage insurance.
Cancelling or Transferring Commercial Mortgages
Cancelling a commercial mortgage is difficult, and can involve particularly unpleasant consequences. For residential mortgages, the cancellation penalty is generally three months of interest. However, the penalties and fees associated with leaving a commercial mortgage are much higher, making it nearly impossible to break a contract with a lender before its expiry. Even if you manage to transfer the mortgage to another person, most lenders will ask that the original owner stay on the mortgage as a guarantor. Because it is so difficult to get out of a commercial mortgage once an agreement has been signed with a lender, it’s crucial that you know all the information before making such a commitment.
Investing in income real estate is a wise business decision, especially in a city like Montreal that has many desirable properties at good prices. If you want your property to generate income, be smart about the mortgage lender you choose. Staying informed is the key to making the right decisions concerning your income properties in Montreal.
Contact us at Baron Realty for more information on how to make the local real estate market work for you.