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That new LTV cap on refis will inevitably increase the number of A clients seeking private second mortgages, says one broker specialist. It will also increase the need for broker vigilance.
“We’re talking about A clients who would have been able to go to the bank for a refinance up to 85 per cent under the old rules,” said Morgan Vaughan, with TMG The Mortgage Group in Toronto. “They can now only go to 80 per cent, and I think what we’ll see more of is that type of client turning to private lenders to fill the gap and get that extra 5 per cent out.”
Any move in that direction would mark the resurgence of the second mortgage – once the stock and trade of many mortgage brokers, but increasingly relegated to the past.
Jim Flaherty may have changed that trend in moving last month to lower the LTV cap on refis to 80 per cent from 85 per cent.
That rule change has the potential to divert a number of deals from the bank to the broker, still it falls to mortgage professionals to make sure the pros of a second mortgage outweigh the cons.
“Brokers have to assess whether the lender’s fees on the second mortgage aren’t so high that they minimize the value of drawing that extra 5 per cent equity out of the house,” Vaughan told MortgageBrokerNews.ca. “They also have to look at the potential costs associated with possibly having to renew the term of that second mortgage.”
There are other considerations for brokers looking to arrange those mortgages, including the higher interest rate. Still blended with the rate on the first mortgage – the prime rate mortgage – the financials often work out in the clients favour, said Vaughan.