The mortgage challenge
As a self-employed person, having your own business offers various advantages, including independence. However, in some cases, it may seem that providers of Canadian mortgage products prefer the perceived safety factors associated with the usual T4 employee type! Although securing an excellent mortgage may pose a greater challenge if you are self-employed it can be achieved with relative ease providing the process is correctly applied.
It is common knowledge that mortgage lenders can have different attitudes to different mortgage applicants. However, when it involves those who are self-employed it does seem that lenders often consider them as posing a higher risk. From their point of view, this could be influenced by the fact that usually there is significantly more paperwork associated with the underwriting process for an applicant with their own business and self-employed mortgages. Perhaps, a reason why various lenders prefer their clients to be the T4 variety!
Although it’s possible you could pay more for your mortgage, due to being viewed by lenders, as a higher-risk borrower. It results in needing to ask yourself some questions, for instance; are you prepared to pay slightly more in order to secure a mortgage? This interest rate does vary between banks and the rate you could pay may be a little higher, but, it is worth it?
Income and rates
The reason for this is that many self-employed applicants show a minimum income on paper. This has the effect of them needing to secure their self-employed mortgages using for example, “stated income” products. Therefore, the interest rate is frequently slightly above that if they declared more income, or listed as a T4’d employee.
It takes on a different context when you calculate the extra interest cost of the higher mortgage rate, and compare it to the other option, which is usually worthwhile. This alternative option is simply the action of you declaring more income on your tax returns. Yes, it does mean that you will pay more income tax! However, generally the increased tax payable is significantly less than the small increase in the interest rate payable on a self-employed mortgage.
Furthermore, if you declare sufficient income for mortgage acceptance, with a “stated income” mortgage product, you could not only qualify for the mortgage but also in many instances secure the same preferred rates and terms as those enjoyed by a T4 employee.
The mortgage road may feel long and not always easy for the self-employed but the Mortgage Guys are here to help. Contact us today and we will not stop until we find the right option for you!