When it comes to securing a mortgage in Canada, the path isn't always linear. Whether you're stepping into the housing market for the first time or looking to refinance, understanding the landscape of mortgage lenders is crucial. From the stricter standards of prime A-lenders to the more flexible B-lenders, and the niche role of private lenders, making the right choice is essential and can significantly impact your financial journey over the long term.

Prime A-Lenders: A More Traditional Option

Prime A lenders in Canada, including the big banks such as D, RBC, Scotiabank, CIBC, BMO, National Bank, HSBC, and Desjardins, are often the go-to choice among borrowers with strong credit scores, steady income, and a stable financial history. These lenders stand out by offering lower rates compared to other lenders with a term length of 5 years, potentially leading to considerable cost savings over the life of a mortgage. In Canada, 80 percent.) of Canadians with residential mortgages choose prime lenders.

The appeal of A lenders comes from the fact that they are convenient and secure financial institutions. However, their strict lending criteria, approval process, and emphasis on credit can make them less accessible to some borrowers, especially those who are self-employed, new to Canada, or those with a less-than-perfect credit history.

B-Lenders: A Flexible Alternative

B lenders offer borrowers a middle ground compared to A lenders, with more flexible lending criteria. These lenders include banks like Equitable Bank, credit unions, or monoline lenders. B lenders have lower barriers to entry and mortgage terms that are typically 1-3 years, allowing borrowers to reassess their financial situation and eventually qualify with a Prime A lender.

While B lenders still consider your credit history, they offer more leniency for individuals who may have unstable income, higher levels of debt, or a previous mortgage default on record. However, the trade-offs include higher interest rates and a minimum down payment of 20%, which can be challenging for some buyers. The positive side is that it eliminates the borrower’s need for CMHC mortgage default insurance.

Private Lenders: A Short-Term Solution

For borrowers who find themselves unable to qualify with either A or B lenders, private mortgages may be a viable option. Private lenders focus less on a borrower’s credit history and more on the value of the property being mortgaged. Private mortgages are known for being short-term in nature, usually with one-year terms and significantly high interest rates and associated fees. This path is best suited for individuals who require immediate financing, as a last resort, or as a bridge until more traditional financing can be secured.

Make an Informed Decision with Homewise

At Homewise, our dedicated mortgage advisors take the time to understand the needs and preferences of every client to help them find the right mortgage that fits their circumstances. We pride ourselves on exploring the marketplace and presenting a variety of mortgage options with different rates and features. From there, we can help you assess which option works best for your short-term and long-term financial goals.