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Shadow lending and real estate transactions in Canada

The word shadow has a dark connotation, but it isn't necessarily a negative when it comes to mortgage lending. Real estate transactions are becoming increasingly more complex in the 21st century and it's getting more difficult for some people in Canada to purchase a home. So, doing business with shadow lenders, or those lending money that are not tied to a conventional financial institution, is on the rise.

Anyone not tied to a bank or conventional lending institution who lends money is considered a shadow lender -- even parents who may have loaned the child money for a downpayment on a house. Some believe these kinds of lenders serve a distinct purpose. Firstly, it gives consumers more of a choice when it comes to mortgage shopping, especially for those finding it hard to get a conventional mortgage, for whatever reasons.

Many private lenders will consider a loan to value ratio of up to 85 per cent. Would-be purchasers might want to ask potential lenders some questions like specifics about the term, the interest rate, if there are any penalties for early payment and what would happen in a default situation. Asking if the lender would be on title is another good question.

A lawyer in Canada who has experience with real estate transactions would be able to protect a client from any unscrupulous dealings with private lenders. The attorney would be able to explain any terms of a contract not understood by a client and provide guidance accordingly. Seeking professional advice may save much time and money.

Source:, "What is Shadow Lending? The Key Things You Need to Know", Alisa Aragon, Accessed on Nov. 24, 2017

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