The Difference Between a Lenders, B Lenders and Private Mortgage Lenders
On January 1, 2018, the Canadian government
required the major banks to conduct “stress tests” on prospective
borrowers, effectively making it harder for the average household to qualify
for a mortgage.
Given the steady rise of home prices across
Canada, particularly in Vancouver and Toronto, the move was not welcomed by
many of those eager to get in the housing market. One of the ramifications of
these new rules is that those seeking to buy a home may have to explore more
options in order to be approved for a mortgage.
Before shopping around, it’s essential to understand the different types of lenders that exist to fund mortgages in Canada – doing so will ensure you’re able to obtain the mortgage most suitable for your needs.
The most common financial institutions you’ll
come by fall in the “A lender” category. These are the traditional
banks, monoline lenders and credit unions, such as TD, Scotiabank, MCAP, First
National, ATB, etc.
These institutions cater to customers with good
credit scores and reliable income streams. Most people settle on funding their
mortgage through them, as they are federally regulated (credit unions are
subject to regulation at the provincial level) and have a long and established
history of good lending practices.
Institutions that operate in this category have a
very detailed process you must go through in order to be approved for a
mortgage. Special conditions must be met in order to secure a mortgage,
including the aforementioned stress tests.
Institutions such as Equitable Bank, Canadian
Western Bank and Home Trust fall into the category known as “B
This class of lenders offers less stringent
borrowing requirements, qualifying those that would normally get rejected by A
lenders. The clientele most likely to seek out these institutions are those who
have a weak credit score and inconsistent income streams (such as the
self-employed or recent immigrants).
Though they are less conspicuous than the
traditional banks and credit unions, B lenders are regulated, reputable, and
are a fast growing segment of the mortgage industry in Canada.
B lenders are a great option if you don’t mind
paying a mortgage rate 1 – 2% higher than A lenders, though it’s very possible
to be approved for a lower rate as well; B lenders have lower overhead costs
than A lenders, affording them the ability to offer competitive rates and other
attractive mortgage features to clients.
This category spans a wide spectrum of lenders
from businesses that specialize in mortgages only, to your immediate family
Because private lenders are not required to
comply with the same rules and regulations that banks and credit unions are,
the borrowing requirements are more lenient. Not surprisingly, the mortgage
rates offered by private lenders tend to be higher than those of A or B
Getting approved for a mortgage through an
unregulated lender could be quite easy. However, it’s critical to do a thorough
examination of the mortgage contract. Hiring a lawyer to review the documents is
highly recommended for any real estate transaction.
When assessing the options available to you in
the mortgage market, always take the necessary steps to ensure you are getting
the best deal. Be honest about your financial standing and ask a lot of
questions. And when the time comes to sign on the dotted line, ensure you’re
satisfied with all the information you’ve been provided.
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