Mortgage Lenders in Canada: A and B lenders and Private lenders.
Across Canada there are 3 type of lenders for mortgage financing.
A-side, B or Alternative lenders, and the unregulated private lenders.
A lender is the preferred choice because pricing is the lowest. To get an A side mortgage, one needs to qualify based on the Federal guidelines.
A lenders lend based on Federal regulations.. They approve borrowers that can afford the payments. Also those that pass the stress test, and have acceptable credit.
B lenders are for the most part, a safe alternative to traditional bank lenders. This is so, because they are also regulated. These institutional alternative lender are also a safe bet.
They too will not approve a borrower unless they can afford the payment. These lenders are more flexible with derogatory credit. They accept higher TDS and GDS. Pricing reflect the added risk these lenders take on. But like the A lenders, they have to apply the stress test too.
Private lenders are the last option available for mortgage financing.
These lenders are not Federal regulated. There are many reasons why a borrower may turn to a private lender. For this article it’s to say there are many private lenders that approve based on equity and location. Pricing for private financing is the most expensive of the 3 types. These lenders lend based on achieving a certain yield percentage.
As a consumer you need to protect yourself by making sure you read the fine print in the approval document. Have your lawyer explain any unusual conditions appearing on the mortgage deed.
In the case of private lenders, be certain you it will not put you in a compromised position. Likewise, some B lenders may provide you with a ” closed” mortgage. A closed mortgage will not allow you to prepay or discharge your mortgage early. It can be discharge only at maturity or in a bonafide sale.
Should a borrower fear B lending?
Not at all. Alternative or B lending has become more popular recently. Matter of fact, as of 2019, there has been an increase of 26% in Alternative lending. Keeping in mind that both B lending and Private lending are often combined together as ” alternative lending”. B lending is quite safe the only caveat I can think of is making sure your mortgage contract is not closed as discussed above.
Why is Alternative lending so popular?
There are 3 main reasons why Alternative lending has become popular.
First, A side lending has strict underwriting requirements. It is strict enough to decline even strong credit beacon borrowers.
Second, there are many instances or situations that favor B lending.
We will talk about them in more detail below.
Alternative lending has become more competitive since the beginning of 2020. Borrowing rate have decreased and lender fees too have come down.
What makes Alternative lending so attractive to brokers and borrowers. Here is a list of situation where Alternative lending may be the answer:
- Discharged bankruptcies and consumer proposals is acceptable after only 1 day
- Tds and Gds is acceptable up to 48% and 50%. Lower LTV% may consider higher serviceability in non conforming loans
- Credit scores as low as 525 may are okay with B lenders. No credit scores or rejects are doable by private lenders
- Self Employed people who do not have regular income documentation
- Current derogatory credit such as late payments, collections and different kinds of arrears
- Good credit borrowers that have more than one rental property
- Second home purchases
- Refinance with property tax arrears or CRA tax arrears owing
Aldo Mormile is an experienced mortgage consultant. He is available for consultation. You may contact him at 416-219-7486 or visit the website Canadian Mortgage Finder