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Borrowing Money for A Mortgage: Best Not to Be Self-Employed

We’ve read a lot in the mainstream press about the Bank of Canada cautioning Canadians about household debt—even the supposed “good debt” that taking out a mortgage supposedly represents. And this message is starting to resonate with the very people who pass out the dough in the first place – the chartered banks. Vancouver Observer asked mortgage broker Chris Rempel at True North Mortgage about some of the regulations, and he said: “Things have actually been getting tough for almost a year, now. The folks who have been affected are primarily first time buyers and the self employed—even those with a good credit (FICO) score and a decent-sized down payment.”

This could create a bit of a problem in Vancouver, where a significant percentage of young professionals are unincorporated sole proprietors who are financially responsible but who may still need someone like a parent with home equity to co-sign a loan. After all, affordability is part of what is being promoted in new condo developments in Surrey and along the SkyTrain routes.

Even if you do own a home, the amount of money that a bank might lend to you on your home equity lines-of-credit (HELOC) has also dropped from 100 percent to 65 percent of the appraised value of your property.

Alas, with interest rates at record lows and deposit rates close to zero, there are alternatives out there, according to Rempel. “Credit unions are not bound by quite the same rules as the chartered banks when it comes to home equity lines of credit,” he says. In Vancouver, VanCity is likely as large a mortgage player as any of the Big Six chartered banks.

Then there are what’s known as “B-lenders” or private lenders, who will charge a one to two percent fee along with a mortgage rate that can be as high as 10 percent. “So, right away you’re paying $1000 - $2000 on every $100,000 you borrow, and higher monthly mortgage payments.”

So, perhaps there is a grain of truth to the recent comments from BC Real Estate Association Cameron Muir that new mortgage rules choked home sales in the Lower Mainland over the summer.

Perhaps it wasn’t just that great weather, after all.

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