When Finance Minister Jim Flaherty changed the mortgage rules for the fourth time in just as many years, it sent the residential mortgage market into a whirlwind. People began panicking about needing higher down payments, and the fact that it was going to be harder to get a mortgage than ever – despite historically low interest rates. But while buyers and major lenders might be holding their breath wondering what their next move is, it makes the perfect environment for investors waiting for returns.
The latest round of mortgage rules didn’t actually place requirements for higher down payments on residential home buyers, but they did lower amortization periods on insured mortgages – those which don’t carry the full down payment. In addition to that, tighter rules were also placed on home refinancing and home equity loans, making it just as hard for homeowners as it is for home buyers. In addition to this, many banks are simply tightening their own lending policies and rules, becoming more concerned about home values that may soon fall, and wanting to be prepared for any potential economic downturn.
All of that has made it much more difficult for home buyers looking for a mortgage, and homeowners who may want to refinance, but are no longer eligible at their bank. And that opens the doors for investors.
That’s because investors who have their money in alternative investments such as mortgages can now step in and fill the gap left by the major lenders. These private investors have always been at the sidelines, ready to step in whenever borrowers need or banks have turned them down, but now borrowers are being more aggressive in seeking them out, and are starting to learn more about them – often for the first time.
And that makes now the perfect time for private investors to start putting their money into mortgages and sitting back and waiting for returns. Because interest rates on these mortgages aren’t restricted to what the Bank of Canada has set, nor do they need to compete with the major lenders, they can be set higher, yielding more for the investor – and without any of the risk the stock market or other types of investments carry.
Whenever there’s a tightening of the mortgage rules, it sends people into a panic and can even lead to a downturn, as the residential market has shown recently through its sales numbers. The good news for private investors is that none of those changes or policy applies to them, but it brings the biggest benefits of investing in real estate right to their doorstep.