New home buyers and existing homeowners face many questions when applying for or renewing their mortgage, including what type of mortgage to choose, the length of the mortgage term, and which mortgage lender.
Mortgage lenders come of all shapes and sizesof the little private mortgage lenders to large banks and financial institutions. Each type of mortgage lender caters to different groups of consumers, but that doesn’t mean you should only compare options between the same class of lenders.
A-Lenders are known as the more “traditional” mortgage lenders and include major banks, such as RBC, TD, Scotiabank, CIBC and BMO in Canada. A-Lenders also include credit unions, such as Meridian or DUCA, and other banks, such as National Bank, HSBC and Desjardins.
What are B lenders?
B lenders are an alternative to A lenders, but they are often the first lender of choice for many homeowners.
B lenders that can provide mortgages include MCAP, First National, RFA, Merix Financial, Radius Financial, and CMLS, among others.
Why choose B lenders?
B lenders may offer better mortgage rates than big banks, especially for insured mortgages. B lenders are also often more flexible than the rigid lending policies of A lenders and can offer mortgage options and products that work best for you.
For example, they may offer interest-only mortgages, like this one from Merix Financial.
These interest-only mortgages work as the name suggests: you only have to pay interest on the mortgage, with no principal repayment required.
This is particularly useful for homeowners who have temporary cash flow problems and cannot afford larger mortgage payments in the short term.
This is also helpful for homeowners with other debts that they want to pay off first, such as high-interest credit card debt.
How does a B lender work?
A B lender may also be more forgiving, especially given your current financial situation.
If you have a poor credit score or no credit history, you may have difficulty getting a mortgage from traditional mortgage lenders.
Your source of income may also stand in the way of approval, such as if you are self-employed or rely on commission income.
A B lender can work with you to find the right solution.
They can also be a temporary solution to help improve your financial situation, where you can later switch to an A-Lender or renegotiate for a better mortgage rate.
Mortgages with B lenders can be shorter, for example from a few months to 1-3 years.
However, different B lenders have different policies. Some may require a minimum down payment of 20%, rather than a minimum down payment of 5%, to avoid the need for CMHC insurance.
They may require a home appraisal, which may increase costs or interest rates may be higher, or they may even charge an upfront loan fee up front.
If you have a bad credit history, they might also not be as forgiving about missed mortgage payments.
Some B lenders may also impose significant prepayment penalties if you choose to change mortgage lenders or pay off your mortgage early.
Some B lenders may also not have a significant physical presence, which can be inconvenient compared to the many physical branches that banks have.
How do I apply for a mortgage from Lender B?
Many B lenders are open to the public, but some mortgage lenders only work with mortgage brokers.
A mortgage broker can help you connect with many mortgage lenders, including Lenders A and B, to help you get the best mortgage rate for you.
They can also help negotiate on your behalf, assist you with the mortgage approval process, and may even pass on a portion of their commissions to you through mortgage buyouts.
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