The Learning Centre:
‘Outside the box’: alternative ways to borrow
(Reading time: 3:15)
You need to borrow, but—temporarily or otherwise—your financial situation isn’t ideal. Will you be able to get a loan? What will lenders think of you? What are your options?
Different types of lending are available.
Educators Financial Group Agent-Regional Director Chris Knoch states that the industry has different types of loans and mortgages for people in different financial situations. ‘A’ loans offer the best rates and are available to clients who have a solid credit rating and the qualifying income. “But not everyone falls into this category”, says Chris. “When this is the case, we can turn to alternative lending channels.”
There are three alternative categories of lending: ‘Alt A’, ‘B’, and ‘C’.
Alt A lending best suits borrowers who nearly meet the ‘A’ lending benchmarks for income qualification and/or credit, but may have a slight challenge in one or both categories.
B lending is for those who may be dealing with bruised credit (including a past bankruptcy or consumer proposal) and/or do not meet prescribed debt ratio mandates.
C lending is for those who fall outside of ‘B lending’ criteria and are forced to use private lending (which is very expensive).
Educators Financial Group provides solutions that address a client’s need to borrow, while focusing on their long-term financial health.
When clients with alternative lending needs contact Educators, we examine their full financial landscape. “Our ultimate objective is to help our clients move back into the ‘A’ lending category as soon as possible, based on their unique situation”, states Chris.
He recalls an Educators client who was getting a divorce and needed his wife removed from the property title to finalize the proceedings. Unfortunately, the current lender denied the title change, which created an untenable situation. But using a ‘B’ lender, Chis was able to circumvent the credit and income qualification challenges and not only refinance the mortgage, but also consolidate much of the client’s debt. The client is now in a short-term mortgage, which gives him a chance to rebuild his credit and return to ‘A’ lending status in a short period of time. Most importantly, the couple was able to proceed with their divorce and move forward with their lives.
Alternative mortgages and how they’re different.
According to Chris, the need for alternative mortgage solutions has grown in the past few years, reflecting the rising rate of household consumer debt and the effects of the government’s newly applied ‘stress test’. (You can read more about the mortgage stress test.)
Here’s what you should know when it comes to alternative mortgages:
- The application process is the same as when applying for an ‘A’ category mortgage.
- There may be lender and/or broker fees associated. Note that Educators caps these fees at lower levels than other brokerages, and they can be rolled into the mortgage itself (meaning there are no out-of-pocket expenses).
- Rates are higher, but still reasonable.
- Mortgage terms are shorter (typically 1, 2, or 3 years in duration).
- Borrowed funds can’t exceed 80% of the appraised value of a property.
In addition, the alternative solution developed by Educators will always include an ‘exit strategy’—steps the client needs to take to move back into ‘A’ lending status as soon as possible.
Are alternative loans available?
We understand that provincial government legislation can cause the education community to face unique challenges. That’s why we developed the Full Withdrawal of Service Loan to handle an unexpected drop in income. In short, this is a $5,000 loan which features a quick application process to help mitigate any financial hardships. Talk to a specialist about your options.
Educators Financial Group examines each application on a case-by-case basis, and takes into consideration a client’s recent credit history and proof of confirmable income.
If your income has been disrupted, or if you’ve been late on some monthly payments, don’t assume you can’t get a mortgage. Please give us a call.
An Accredited Mortgage Professional (AMP) will examine your situation and empower you with options to help improve your financial situation in the long run.
Speak with an Educators lending specialist today by calling 1.800.263.9541 or connecting with us online.
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The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.