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More homeowners are turning to private lenders. Here are the risks

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Canada’s stricter mortgage rules are forcing more homeowners to borrow from so-called private or alternative lenders, often at sharply higher interest rates than would be available through a bank.

A recent report by Toronto brokerage Realosophy Realty and land registry company Teranet found a significant increase in the share of consumers turning to private lenders for mortgage refinancings in the Greater Toronto Area (GTA). The percentage of mortgage refinancing transactions done through private lenders rose from 12 per cent in the second quarter of 2016 to 20 per cent in 2018, a 67 per cent increase.

READ MORE: As another rate hike looms, more Canadians feel closer to insolvency

The new mortgage rules impose lower limits on the amount consumers can borrow compared to their income but spare homeowners who are renewing their mortgage, if they stick with their current lender. This suggests that the majority of those turning to private lenders for refinancing are doing so because they need to add to their existing mortgage, John Pasalis, president of Realosophy told Global News.

“So, who are all of these homeowners turning to private lenders?” Pasalis wrote in a blog post introducing the report.

Anecdotal evidence indicates they are “homeowners with great credit and fantastic jobs who are simply living beyond their means. Owners who accumulate debt each year because of countless expenses they hadn’t budgeted for that they can’t say no to (like house repairs, surgery for the dog, and hockey lessons for the kids who suddenly want to play).”

WATCH: Fixed- vs. variable-rate mortgages






But the numbers also suggest it may be young families hoping to renovate their current home rather than move to a bigger house, often a prohibitively expensive move in the GTA. Generation X households account for over 40 per cent of the mortgage transactions and nearly half of the mortgage value provided by private lenders.

Another group that seems to be flocking to non-bank lenders is real estate investors. According to data from the Realoshopy-Teranet report, the growth in private financing was highest in municipalities that had the strongest investor presence.

READ MORE: Line of credit? Mortgage refinance? Experts rank the best and worst options for debt consolidation

The study is one of the first sources of hard data on how the private lending market has evolved since Ottawa began rolling out the tougher federal mortgage rules.

But Eitan Pinsky, of Pinsky Mortgages, said he’s hearing of similar trends in Vancouver.

Though his own brokerage deals mostly with first-time homebuyers, who rarely have a reason to turn to private lending, he said Ottawa’s more stringent mortgage guidelines are prompting the banks to be more conservative in how they account for rental income. This is leading some real estate investors with mortgages coming up for renewal on rental properties to scramble for an alternative source of funding.

“People used to be able to buy rental properties on a single income,” he said. “Now they can’t refinance.”

Another type of borrower caught in the cross-hairs of the new mortgage rules is people who have bought a new house but haven’t yet sold their old home, Pinsky said.

In the past, he said, “they would have been able to carry two mortgages together.” Now, though, they’re finding out they can’t.

WATCH: Paying off your mortgage vs. saving for retirement






What’s a private lender?

Private lenders can be investment corporations that pool capital from investors or individuals lending their own money.

“There are literally hundreds of them across the country,” said Rob McLister, mortgage planner at intelliMortgage.com and founder of rates-comparison site RateSpy.com.

Private lenders don’t take deposits so they aren’t subject to the stricter rules governing how banks and credit unions can lend money. As a result, private lenders are able to make riskier loans.

READ MORE: Need cash in a hurry? Here are the best and worst ways to get it

And while credit unions, which are provincially regulated, aren’t bound by Ottawa’s federal mortgage rules, many of them appear to be voluntarily complying by the new guidelines, Pasalis said. This means private lenders are often the only option for borrowers who don’t qualify for a loan under the stricter regulations.

Every mortgage broker Global News spoke with described private lenders as a short-term stopgap measure for borrowers who cannot access any other source of funding.

Pinsky described a recent client who accessed a private loan after inheriting a $900,000-home from his mother. The property was in disrepair, and had a $150,000 mortgage on it. The client had poor credit and tax debt, which meant he wasn’t able to get financing from a bank. In the meantime, the mortgage lender was foreclosing on his mother’s house.

Through a private loan, Pinsky’s client was able to get enough money to pay off his debt to the Canada Revenue Agency as well as the mortgage. Now he plans to refinance the loan with a bank as soon as his credit record is repaired.

READ MORE: What you probably don’t know about renewing your mortgage

“If you’re about to lose your home, getting a private mortgage and giving yourself time to sell (or take other measures) is better than losing your home,” McLister said.

But Nishka Riley, a Vancouver-based mortgage broker, said she’s seeing more and more individuals “with impeccable credit, solid job stability and income stability being forced to explore private financing options.”

For example, she said, she worked with a couple going through a divorce who was forced to use a private loan to finance the division of assets.

“If they had divorced in 2016 [before the new rules], they would have had no problems with starting their new lives,” Riley told Global News via email.

WATCH: What is the best way to consolidate debt?






The risks of borrowing from private lenders

Because private lenders are taking on higher risks, they also charge much higher interest rates than the banks.

“We’re talking 7-9 per cent interest plus 1.50-2.50 per cent fees for first mortgages and double-digit rates for second mortgages,” McLister said.

Private lenders also quicker than the banks to foreclose on a home if a borrower falls behind on their mortgage payments, he added. “And the fees and liquidation costs are brutal, almost to the point that some shadier privates even root for borrowers with high-demand homes and lots of equity to miss a payment.”

Borrowing on the private market makes sense when there is a strategy in place to go back to borrowing from a regular lender, Riley said.

“If there is no transition strategy available, then there should be an event that will allow for the funds to be repaid.”

But because of the recent increase in demand for private loans from well-qualified applicants, she added, “competition in this sector is heating up, and we are starting to see lenders not charge fees or increase their interest rates,” despite several rate increases by the Bank of Canada.

READ MORE: Bank of Canada raises interest rate to 1.75% — signals more hikes imminent

Still, another risk of borrowing from private lenders is that credit could dry up quickly if the economy hits a rough patch and housing prices start to decline, Pasalis said.

Because private lenders are taking on more risk, they are also more sensitive to market downturns.

READ MORE: September home sales slip 0.4% compared to August, first dip since April: CREA

“Hopefully we don’t get to that point,” Pasalis said.

But if we did, homeowners with no backup plan may be forced to sell their homes.

© 2018 Global News, a division of Corus Entertainment Inc.

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Anglais

Nostalgia and much more with Starburst XXXtreme

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Get a taste of adventure with Starburst XXXtreme based on the legendary NetEnt Game. The nostalgic themes are sure to capture fans of the classic version as they get treated to higher intensity, better visuals, and features. The most significant element of the game is its volatility. Patience will not be an essential virtue considering the insane gameplay, and there is a lot of win potential involved. It retains the original makeup of the previous game while adding a healthy dose of adrenaline. 

Starburst Visuals and Symbols

The game is definitely more conspicuous than before. The setting happens over a 5-reel, 3-row game grid with nine fixed win lines, which function if a succession from the left to the right reel is present. Only those players that that attain the highest win per bet line are paid. From a visual standpoint, the Starburst XXXtreme slots illustrates lightning effects behind the reels, which is not surprising as it is inherited from the original version. Available themes include Classic, Jewels, and Space. The game is also available in both desktop and mobile versions, which is advantageous for players considering the global pandemic. According to Techguide, American gamers are increasingly having more engaging gaming experiences to socialize to fill the gap of in-person interaction. Starburst XXXtreme allows them to fill the social void at a time when there is so much time to be had indoors. 

Starburst XXXTreme Features

Players get to alternate on three features which are Starburst Wilds, XXXtreme Spins, and Random Wilds. The first appears on reels 2,3, or 4. When these land, they expand to cover all positions while also calculating the wins. They are also locked for a respin. If a new one hits, it also becomes locked while awarding another respin. Starburst XXXtreme offers a choice between two scenarios for a higher stake. In one scenario with a ten times stake, the Starburst Wild is set on random on reels 2,3, or 4, and a multiplier starts the respin. The second scenario, which has a 95 times stake, starts with two guaranteed starburst wilds on reels 2,3, or 4. it also plays out using respin game sequence and features. The game also increases the potential with the Random Wilds feature to add Starburst Wilds to a vacant reel at the end of a spin. Every Starburst Wild gives a random multiplier with potential wins of x2, x3, x5, x10, x25, x50, x100, or even x150.

The new feature is sure to be a big hit with the gaming market as online gambling has shown significant growth during the lockdown. AdAge indicates the current casino customer base is an estimated one in five Americans, so Starburst XXXtreme’s additional features will achieve considerable popularity. 

What We Think About The Game

The gambling market has continued to diversify post-pandemic, so it is one of the most opportune times to release an online casino-based game. Thankfully Starburst XXXtreme features eye-catching visuals, including the jewels and space themes. These attract audience participation and make the gameplay inviting. The game also has a nostalgic edge. The previous NetEnt iteration featured similar visuals and gameplay, so the audience has some familiarity with it. The producers have revamped this version by tweaking the features to improve the volatility and engagement. 

That is characterized by the potential win cap of 200,000 times the bet. Starburst XXXtreme does not just give betting alternatives for players that want to go big. The increase of multipliers also provides a great experience. If the respins in the previous version were great, knowing that multipliers can go hundreds of times overtakes the game to a new level. 

Players should get excited about this offering. All of the features can be triggered within a single spin. Whether one plays the standard game or takes the XXXtreme spin route, it is possible to activate all of the features. Of course, the potential 200,000 times potential is a huge carrot. However, the bet size is probably going to be restricted and vary depending on the casino. It is also worth pointing out that a malfunction during the gameplay will void all of the payouts and progress. Overall, the game itself has been designed to provide a capped win of 200,000 times the original bet. 

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Anglais

‘We’re back’: Montreal festival promoters happy to return but looking to next year

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In downtown Montreal, it’s festival season.

In the city’s entertainment district, a musical act was conducting a sound check on stage Friday evening — the second day of the French-language version of the renowned Just For Laughs comedy festival. Tickets for many of the festival’s free outdoor shows — limited by COVID-19 regulations — were sold out.

Two blocks away, more than 100 people were watching an acoustic performance by the Isaac Neto Trio — part of the last weekend of the Festival International Nuits d’Afrique, a celebration of music from the African continent and the African diaspora.

With COVID-19 restrictions continuing to limit capacity, festival organizers say they’re glad to be back but looking forward to next year when they hope border restrictions and capacity limits won’t affect their plans.

Charles Décarie, Just For Laughs’ CEO and president, said this is a “transition year.”

“Even though we have major constraints from the public health group in Montreal, we’ve managed to design a festival that can navigate through those constraints,” Décarie said.

The French-language Juste pour rire festival began on July 15 and is followed by the English-language festival until July 31.

When planning began in February and March, Décarie said, organizers came up with a variety of scenarios for different crowd sizes, ranging from no spectators to 50 per cent of usual capacity.

“You’ve got to build scenarios,” he said. “You do have to plan a little bit more than usual because you have to have alternatives.”

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Anglais

MELS new major movie studio to be built in Montreal

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MONTREAL — MELS Studios will build a new film studio in Montreal, filling some of the gap in supply to meet the demand of Hollywood productions.

MELS president Martin Carrier said on Friday that MELS 4 studio construction will begin « as soon as possible », either in the fall or winter of next year. The studio could host productions as early as spring 2023.

The total investment for the project is $76 million, with the Quebec government contributing a $25 million loan. The project will create 110 jobs, according to the company.

The TVA Group subsidiary’s project will enable it to stand out « even more » internationally, according to Quebecor president and CEO Pierre Karl Péladeau. In the past, MELS Studios has hosted several major productions, including chapters of the X-Men franchise. The next Transformers movie is shooting this summer in Montreal.

Péladeau insisted that local cultural productions would also benefit from the new facility, adding that the studio ensures foreign revenues and to showcase talent and maintain an industry of Quebec producers.

STUDIO SHORTAGE

The film industry is cramped in Montreal.

According to a report published last May by the Bureau du cinéma et de la télévision du Québec (BCTQ), there is a shortage of nearly 400,000 square feet of studio space.

With the addition of MELS 4, which will be 160,000 square feet, the company is filling part of the gap.

Carrier admitted that he has had to turn down contracts because of the lack of space, representing missed opportunities of « tens of millions of dollars, not only for MELS, but also for the Quebec economy. »

« Montreal’s expertise is in high demand, » said Montreal Mayor Valérie Plante, who was present at the announcement.

She said she received great testimonials from « Netflix, Disney, HBO and company » during an economic mission to Los Angeles in 2019.

« What stands out is that they love Montreal because of its expertise, knowledge and beauty. We need more space, like MELS 4, » she said.

There is still not enough capacity in Quebec, acknowledged Minister of Finance, the Economy and Innovation Eric Girard.

« It is certain that the government is concerned about fairness and balance, so if other requests come in, we will study them with the same seriousness as we have studied this one, » he said.

Grandé Studios is the second-largest player in the industry. Last May, the company said it had expansion plans that should begin in 2022. Investissement Québec and Bell are minority shareholders in the company.

For its part, MELS will have 400,000 square feet of production space once MELS 4 is completed. The company employs 450 people in Quebec and offers a range of services including studio and equipment rentals, image and sound postproduction, visual effects and a virtual production platform.

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