Spooked borrowers are taking out second mortgages at higher-than-usual rates.
According to Adma Maher, a mortgage agent with Assured Mortgage Services, lenders are declining deals more and more these days, forcing borrowers into the private channel to secure second mortgages.
“It’s getting harder and harder for people to qualify, especially with the qualifying rate,” she said. “It went from 4.64% to 4.84%, 4.89% and then 4.99%, so with this huge jump a lot of people either have to go B, where there’s more flexibility, or private.
“Not only is it harder to qualify but a lot of people don’t have enough to put down for down payments, so to make the deal work a lot of people are taking another mortgage to cover the difference for the down payment to qualify.”
Steve Garganis, a mortgage broker with Mortgage Intelligence
, has noticed the same thing. In particular, he has noticed lender stipulations tightening with each year. Not only are self-employed borrowers not getting approval, neither are lawyers—a sign that even high-earning borrowers are finding themselves shuttered out.
“There is an uptick in second mortgage borrowing because people don’t qualify for what they did a year or two years ago because of regulation changes that came in last year, and the year before that, and the year before that,” he said. “We’ve seen tightening every year for the last five or six years.”
Borrowers are also refinancing en masse, it seems, because word about B20 is getting out.
“The word is out and people are realizing that if they want to access capital or equity in their home, they may not qualify next year for what they want, so there’s a bit of a panic,” said Garganis.
In particular, borrowers locked into a really good fixed-rate realize their luck is running out and they’re taking out favourable second mortgages while they still can.
“Second mortgages have become more of a go-to product, but that could also be because we’ve had record-low interest rates,” he said. “So if someone is in a really good interest rate in a five-year rate at 2.5%, or 2.4%, which is possible, and then they need to borrow more money, it doesn’t make sense to break that rate on a mortgage of $300,000 or $400,000just to access $40-50,000 because the cost of doing that is more prohibitive than going and getting secondary financing.
“I recommend that strategy to my clients when I see a good rate or price on their first mortgage. Obviously, for qualified applicants they should get a secure line of credit.”
But secured lines are incredibly difficult to qualify for.
“It’s a very tough product to get,” he said. “A huge number of people are trying to get secure lines of credit but are unable to get them.”
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