A Toronto bad credit mortgage can have a bunch of different meanings, depending on who you’re talking to.
For the purposes of this discussion, we define bad credit as a credit score and credit profile that combined do not allow you to otherwise secure the lowest available mortgage interest rates, assuming that all other lending requirements are met.
As we are describing it, bad credit is therefore a credit profile that increases your cost of financing and/or reduces or eliminates different residential mortgage financing options altogether.
Bad credit is also not just about your credit score, although the credit score on its own can eliminate you from consideration from different mortgage lending programs. For instance, there are instances where an applicant will have a credit score sufficiently high enough to be approved under a given mortgage program, but a review of items appearing on the credit history still lead to an application decline.
The primary mortgage lenders tend to have very high credit standards which is in keeping with a low rate equals low risk philosophy. If an applicant has a decent credit score, but shows indications in their credit history of paying late or not being on top of their credit responsibilities, they can still get declined by the lower rate mortgage programs.
Lets look at the varying degrees of bad credit and how they will impact your ability to secure a residential mortgage.
While all mortgage lenders have their own unique criteria when it comes to credit requirements, for the most part a credit score of at least 675 will be sufficient for most “A” mortgage lenders. As long as supporting credit history does not provide any unique repayment concerns, this level of credit will be sufficient to secure most of the low rate offerings on the market.
The credit score basically has an inverse relationship with interest rates, so as the credit score drops below the 675 level, the residential mortgage interest rates, on average, tend to rise.
With a score between 625 and 675, there are still going to be secondary banking solutions available, but at slightly higher rates.
Once your credit score drops below the 600 level, where will be few if any mortgage programs you will be able to qualify for.
At the lower levels of credit, a bad credit mortgage is likely only going to be available from a private mortgage lender who is more focused on the strength of the real estate security and the exit strategy to repay the mortgage at the end of the interest term. Even with private lenders there can be a certain level of credit review as many privates are not prepared to deal with someone with habitually bad credit habits.
Severe bad credit can even make it difficult at times to get a bad credit mortgage from a private lender and for those that will consider the application, the interest rate, lender fees, and borrower down payment, or equity position in the property, are all going to be higher than if the credit profile was less negative.
Private mortgages are typically for a one year interest term, although longer terms are possible to secure as well. In essence, a private mortgage for residential property purchase, refinancing, or debt consolidation is a short term bridge loan, allowing the borrower time to improve their credit so that they can refinance with a bank or institutional lender at better rates and a structured longer term repayment schedule.
If you have less than perfect credit and still want to get the best available deal on a new residential mortgage, your best approach would be to work with an experienced residential mortgage broker who is prepared to go through your situation in detail and provide the most relevant mortgage options available to you at a given point in time.