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These combined loans take borrowers up to the kind of loan-to-value ratios that were common in the United States prior to the 2008 subprime mortgage crisis.

Canada’s biggest non-prime lender Home Trust is already selling a “bundled” product, twinning a conventional mortgage with a second loan by private lenders, which enables home buyers to borrow up to 85 per cent of a property’s value.

The new rules that took effect on Oct. 17 require buyers applying for an insured mortgage to show they can afford to pay it back at the Bank of Canada’s five-year fixed rate of 4.64 per cent. Canada’s biggest banks currently offer mortgages at rates about two percentage points below that.

To bypass that test, buyers can make a 20 per cent down payment that qualifies them to take out an uninsured mortgage. Brokers said many buyers will turn to unregulated private loans to enable them to make that payment.

Rising costs

“It pushes Canadians into private second mortgages, and it’s just costing more and more money for these people,” said Toronto broker Mark Cashin, who has arranged such deals in the past and expects to see more under the new rules.

Cashin said private second mortgages in Toronto typically charge between 7 and 10 per cent in interest.

“It’s not a good option but maybe it’s the only option we’ve got,” said Ron Alphonso, a private mortgage lender and mortgage agent who arranges home loans for borrowers who can’t get financing from mainstream banks.