December 16 2022
Prime mortgage lenders like big banks and credit unions are often the preferred choice amongst borrowers, however, they aren’t always the easiest to get a mortgage with. These types of lenders are a little more stringent on who they approve for a mortgage – both for new mortgages and renewals.
Although this may sound limiting, the truth is, it’s not. Fortunately, other lending options exist for Canadians and can be considered by buyers who are seeking more flexibility. An alternative mortgage might just be what you need to get approved for a renewal or a refinance.
What is alternative mortgage funding?
Alternative mortgage financing is exactly what it sounds like – an alternative to receiving a loan from a prime A lender, like a bank credit union or monoline lender. Alternative mortgage lenders include credit unions, smaller banks and online B lenders (this includes lenders like Hometrust, Equitable Bank and Canadian Western Bank). It is important to note, alternative B mortgages are not private mortgages. The biggest perk of seeking a mortgage through an alternative lender is that they are not strictly regulated by the federal government. Although B lenders are still governed by B-20 guidelines, they are able to make exceptions, provide flexible options and in most cases, loan you money to purchase or refinance your home.
What is a B Lender Mortgage?
There are strict laws in place for A lenders to follow and a lengthy application process that strongly considers your credit score, history, debts and employment income. These can be a hurdle for some, especially recent immigrants or those who are self-employed. While these factors are still important when applying for a mortgage through a B-lender, there are workarounds that just aren’t possible when working with a big bank.
Pros and Cons of B Lender Mortgages
If you were turned down by a big bank due to unstable income, high debt, previous mortgage defaults, etc. – B-lenders will still give you an opportunity to be considered for a mortgage.
B-lender mortgages typically offer 1-3 year terms, which allows you to reassess your financial situation in a few years and transition to a more traditional lending source without penalty fees.
Getting into the housing market is important yet very difficult for many Canadians. B-lenders provide a helping hand to get you started and eventually, you can access what A-lenders are offering. It’s a temporary but solid option for many.
In comparison to A Lenders, B Lender mortgage rates are higher. This is because you pose more of a risk to the lender and they offset this by charging higher interest rates, as well as a commitment fee or lender fee upfront.
This can be a challenge for many buyers, however, this is a positive because you will avoid paying CMHC mortgage default insurance.
B Lenders prefer larger metropolitan areas because these are typically more attractive to future buyers. If you are into remote living – this might not be your best bet!
Am I a good candidate for a B Lender mortgage?
The short answer is maybe. There is no one-size-fits-all standard for you to qualify for a mortgage from a B lender. This makes them a very valid option for someone who has been turned down by a big bank. Your eligibility will be evaluated based on your unique financial situation. Each alternative mortgage lender has different rates, approval requirements and total borrowing amounts. They are filling the gaps for those who don’t fit into a specific box.
Everyone’s home buying journey looks a little different. That’s why at Homewise, we work with multiple lenders and partners to provide our users with a variety of mortgage options. Our relationships with lenders allow us to get rates and features that homebuyers will usually have to negotiate and haggle for. If you want to navigate the various mortgage options available, apply online with us in just five minutes today! One of our dedicated Mortgage Advisors will be in touch to discuss the best strategy for your unique financial situation.
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