06 Feb 2020 Private Mortgages
The Canadian mortgage industry is commonly subdivided into three categories of lenders; A lenders, B lenders, and private lenders, with each catering to their own subset of borrowers. Each lender category is characterized by their qualification standards, rates, and approval processes as summarized below.
What Is An ‘A’ Lender?
‘A’ lenders are Canada’s traditional mortgage providers, including major banks and credit unions. They tend to service Canadians with strong credit scores and reliable income sources. Although they offer the most competitive rates, they’re also the toughest to qualify for. Any borrower going through the traditional mortgage stream will be required to pass the stress test. The stress test aims to ensure Canadian borrowers can financially manage should interest rates rise above their contractual rate, forcing mortgage applicants to qualify at two percentage points higher than their actual rate.
What Is a ‘B’ Lender?
‘B’ lenders are alternative banks outside of Canada’s big five who offer subprime mortgage rates to those who are unable to qualify with an ‘A’ lender. The higher rates charged by ‘B’ lenders are compensated with more lenient qualification standards, allowing borrowers with credit issues or lack of guaranteed income to qualify for a mortgage. As ‘B’ mortgages are considered riskier for lenders, home equity is commonly used to offset the higher risk of default.
What is a Private lender?
A private lender is typically funded by investment corporations or private individuals. Private mortgages are generally set up as short-term, interest-only products.
As opposed to ‘A’ lenders, private lenders are not regulated by the Bank of Canada and as such set their own lending requirements and criteria. This permits private lenders to place greater emphasis on borrowers’ assets rather than the individuals, producing the most lenient qualification process for Canadian borrowers.
Which Lender Is Right for Me?
Obtaining financing through an ‘A’ lender should be your goal in order to receive the lowest rates. Although this is every borrower’s aspiration, it isn’t achievable for all Canadians. That’s where alternative lenders come in. Here are some scenarios where a ‘B’ or private lenders may be your best bet.
Rateco works with all classification of lenders; ‘A’, ‘B’, and private! We’re happy to work with you to help determine your best financing partner. We pride ourselves on our borrower-first mentality providing complete transparency and honestly throughout your experience.
The Rateco auction enables lenders to bid against one another to service your mortgage. Borrowers have total choice and control over who they chose to work with, forcing lenders to provide their most competitive interest rates to win your business. Best of all, there’s absolutely no cost to you, the borrower, until your mortgage has been funded. We’re happy to work on your behalf, risk free!