In the past 12 months mortgage broker Mark Mitchell has been hearing from a growing cohort of homeowners who want to join the booming business of private mortgage lending, despite the inherently higher risks.
“The new ones who have called me say they are accessing the equity in their home via a Home Equity Line of Credit and they want to lend it out at 12 per cent,” Mr. Mitchell said. What does he think happens when he turns them down? “I think they go down the list on Google and look for a broker that will take them on. That’s going to end well,” he says wryly.
According to the FSRA, $164-billion in mortgages were arranged in Ontario through agents or brokers in 2020, about 8.2 per cent of that were private mortgages worth perhaps $13.5-billion. The data collection on private mortgages is incomplete, but Huston Loke, executive vice-president of market conduct at FSRA, says he has no reason to believe private mortgages have declined as a share of loans in the province given the rapid rise in house prices in 2021.
There are several categories of private mortgage and not all are created equal. The main advantage for someone buying a residential home is that a private lender may not require a financial stress test, and much of that business is conducted by credit unions and mortgage investment companies such as Homequity Bank or Fisgard Capital. In 2021, the CMHC described MICs as the fastest growing segment of the mortgage market.
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