Alternative Mortgages Defined
Nonprime, or alternative, loans are typically for persons with blemished or limited credit histories who do not qualify for mortgages from banks or other traditional lenders. The loans carry a higher rate of interest than prime loans to compensate for increased credit risk.
History of Alternative Mortgages in Canada
The alternative market in Canada is still in the early stages of development. In the past, intense competition has driven U.S. “subprime” lenders to take on more risky clients than they can afford, and the market has seen the effects. The same issues are not a factor in the Canadian alternative lending market for several reasons:
- Conservative investing practices employed by investors in Canada
- A relatively small market of lenders with little competitive pressure
- The absence of tax laws that make interest on mortgage payments a tax deduction as they are in the U.S.
PrimeWest understands that the quality of our mortgage portfolio is the heart of our company. PrimeWest routinely analyzes its portfolio.
Western Canadian Markets
The alternative mortgage industry could be worth as much as $900 million in Saskatchewan. Because of narrow approval criteria, literally thousands of people in Saskatchewan do not qualify for traditional mortgages, despite an ability to manage timely payments. By tapping into this market early, PrimeWest can concentrate on borrowers who are the lowest risk within this group. According to the Mortgage Bankers’ Association, the default rate on Canadian non-conventional mortgages is currently 0.6% over 10 years.