In real estate business, a lender is an individual or a firm that offers the use of its money through loans or mortgage for a temporary period to acquire a real estate asset temporarily on condition that the amount borrowed would be returned, usually with an interest fee. In effect, the lenders may be categorized under three groups - private investors, key direct lenders and agent sources who are better known as mortgage brokers.
All major Canadian banks, including the Royal Bank of Canada, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Bank of Montreal and the Toronto Dominion Bank, that are administered by the Canadian Bank Act offer an assortment of mortgage features and services to individuals as well as real estate firms. The offers of these banks also comprise special purpose financing.
Strictly controlled by two different national decrees - the Canadian and British Insurance Companies Act and the Foreign Insurance Companies Act, the life insurance firms in Canada have always been very powerful in the turf of housing as well as business mortgages throughout the country. While these life insurance firms already control a major market share in these mortgage segments, of late they have expanded their sphere of activities to include commercial and industrial assets. In addition, now the Canadian life insurance companies have also engaged themselves in activities such as pension funds and listed retirement investment plans. Moreover, many other life insurance firms in Canada are now actively expanding their foundation of fiscal services.
In the recent years, trust firms in Canada have stepped into the sphere of activity that was so far considered to be the private fields of the banks, finance companies and investment brokers. Today, the trust companies in Canada are a force to reckon with in the mortgage funding market. In fact, the Trust Companies Act enacted by the federal government of Canada regulates the expansion programs of the trust companies into the mortgage funding market. Presently, the trust companies offer all ranges of fiscal services involving funding for residential complexes as well as exceptional purpose loans.
The loan companies in Canada are usually associated with some trust company or the other as the law allows a fair amount of autonomy to the trust societies in investing their resources. Conventionally, there are two basic dissimilarities between the trust organizations and the loan firms. In fact, the loan companies are not permitted to function as mediators or trustees and have to essentially acquire their finances by issuing debentures or certificates of debt and not through interim certificates and investment deposits. Hence, a loan company is able to balance the functioning of a trust organization. It may be mentioned here that the Trust and Loan Companies Act is the federal law that regulates such functioning of the trust organization and loan firms. In fact, several provinces in Canada have enacted their individual laws to further regulate the activities of the loan companies. This is one reason why the loan companies are less noticeable as compared to the trust organizations, chartered banks and life insurance firms.
In Canada, the credit unions also known as cooperatives and lending institutions are primarily controlled by the Credit Unions and Caisses Populaires Act. Over the years, these credit unions have become very active and expanded their sphere of activity to mortgage funding. They have also become more aggressive and endowed in resale of residential property, farm as well as small income assets. However, it is important to note that since the credit unions are basically co-operative bodies, they need to exclusively deal with members vis-à-vis real estate funding.
The finance companies in Canada are not regulated by any law that is applicable to either chartered banks, trust organizations or even the majority of the conventional money lenders. On the contrary, the finance companies enjoy certain amount of suppleness in offering tailor-made financial packages to the customers according to their respective requirements. In addition, the sphere of activity of the finance companies in Canada not only includes real estate mortgage, but also chattels or moveable properties. These days, the finance companies also aggressively hunt for purchasing mortgages provided they fulfill the organizations' profit requirements delineated from before.
The credit corporations established in the provinces are allowed to offer financial packages only under special permissions. One instance of this is the funding made by the agricultural credit corporations for farming activities, while another example of this is the loans sanctioned by the small business development corporations to facilitate the funding for different business enterprises.
Mortgage brokers are individuals or firms that stand for either a lender (mortgagee) or a borrower (mortgagor) and facilitate the process of bringing the two parties together leading to a successful mortgage agreement. Mortgage brokers are also known as mortgage dealers and in order to carry out their business they need to be listed as per the specific laws of different Canadian provinces. Individuals or firms engaged in real estate business are free from being registered under such legislation. However, the exemption is only subject to the provisions in the laws of the different provincial administration.
Usually, individuals or firms willing to make private investments in real estate market operate through their lawyers. There are a variety of such private investors, including new residential constructors in the neighborhood and people selling homes and then agreeing to take back mortgage to smoothen the process of the property's resale. In fact, individuals engaged in real estate deals should essentially have the backing of private investors just in case to cover up for the failure of the traditional money lenders as well as help in critical situations. While dealing with any such private investor, one must always make certain that the concerned parties look for legal advice, the objective of the parties are evidently documented and the terms and conditions of any financial package is cautiously sketched out in the contract or agreement. In addition, all buyers should be clearly told that there is no legal imposition on any private investor or their activities.
Lender holdback denotes a situation when the lender does not provide the agreed funds to a borrower until the borrower fulfills the necessary obligations or meet any conditions that are essential for the loan to be granted.
For instance, it is possible that a lender may holdback or holdup the release of the advance amount unless the borrower or the mortgagor completes specific construction work or undertakes necessary repairs of the real estate property that is being put up as security against the loan. This could include repairing and maintaining the existing electrical wiring and service, changing an obsolete furnace, installing the siding or undertaking changes in some structures. Usually, when a lender resorts to a holdback, he or she gives a specific time for the necessary work to be completed with a provision for an inspection of the property once again. Normally, lender holdback relates to comparatively negligible structural or superficial changes to the real estate property that is being considered for mortgage financing. However, if the property requires considerable changes or modifications such as constructing something new, the lender usually provides advance funds in installments as the work progresses.
The lending firms frame their own terms and conditions for offering financial packages depending on the different kinds of real estate assets, on whether it is the first mortgage on the property or a second mortgage known as equitable mortgage is being arranged for the property and other aspects. On the other hand, a mortgagee may decline to finance a property or may even ask for an enhanced equity position or stake in the property by restricting the amount of the mortgage finance. The lender may also ask for an increased interest rate on the credit, or resort to holdback of funds until necessary repairs of the property are done. In fact, the lender may seek any of the above mentioned criterion separately or a combination of many before agreeing to financing a mortgage.
From the above discussion we learn that several conditions or criteria may influence the sanctioning of mortgage finance. And these include a variation in the interest rate on the credit finance as well as lender holdback. Below, find a list of conditions that may usually limit the approval of a mortgage.
The approval of a mortgage may be limited owing to physical detraction. These may include specific category of siding like insulbrick, absence of a central heating arrangement and dependence on space heaters, obsolete electrical wiring arrangement like 60-amp power supply, poor water supply system detected during tests such as availability of mere two gallons of water every minute, a well dug inside the property, incomplete basement, key amenities like a swimming pool in structurally dilapidated state and several others.
Even the failure on the part of the mortgagor to abide by the legal requirements may lead to the lender refusing a mortgage financing or holdback advance payments. These may include the failure to fulfill the local building regulations, noncompliance with local by-laws and many others conditions.
In addition to the above mentioned aspects, there are several other factors that may make a mortgagee decide against approving mortgage finance. Apart from the delineating or zoning factor, this may include non-compliance with the existing type of property in a particular area, flaws in the interior or exterior designs of the property and a worsening locality.