New home buyers and existing homeowners face numerous questions when applying or renewing their mortgage, including what type of mortgage to choose, the length of the mortgage term, and which mortgage lender.
Mortgage lenders come in all shapes and sizes, from small private mortgage lenders to large banks and financial institutions.
Each type of mortgage lender caters to different groups of consumers, but it doesn’t mean that you should only compare options between the same lender class.
A-Lenders are known as the more ‘traditional’ mortgage lenders and include the big 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 including MCAP, First National, RFA, Merix Financial, Radius Financial, and CMLS, among others.
Why Choose B-Lenders?
B-Lenders can provide better mortgage rates than the big banks, particularly for insured mortgages. B-Lenders are also often more flexible than the rigid lending policies of A-Lenders and can provide mortgage options and products that suit you best.
For example, they might offer interest-only mortgages, such as by Merix Financial.
These interest-only mortgages work just as their name suggests, where you only need to pay interest on the mortgage, with no principal payments required.
This is particularly helpful for homeowners that have temporary cash flow problems and cannot afford larger mortgage payments in the short term.
This is also helpful with homeowners with other debt that they are prioritizing to pay-off first, such as high-interest credit card debt.
How Does A B-Lender Work?
A B-Lender can also be more accepting, such as due to your current financial situation.
If you have a poor credit score or no credit history at all, you may find it difficult to qualify for a mortgage at traditional mortgage lenders.
Your income source might also stand in the way of approval, such as if you are self-employed or if you rely on commission income.
A B-Lender can work with you to find the right solution.
They can also be a temporary stop-gap to tide you over as you improve your financial situation, in which you can later switch to an A-Lender or renegotiate for a better mortgage rate.
Mortgages with B-Lenders can be shorter in length, such as from a few months to 1-3 years.
However, different B-Lenders have different policies. Some might require a minimum 20% down payment, rather than a minimum 5% down payment, to avoid CMHC insurance need.
They might require a home appraisal which can add on costs or interest rates might be higher, or they might even charge an initial lending fee upfront.
If you have a poor credit history, they might also not be so lenient on missed mortgage payments.
Some B-Lenders might also have large prepayment penalties should you choose to switch mortgage lenders or pay off your mortgage early.
Some B-Lenders might also not have a large physical presence which might be inconvenient compared to the numerous physical branches that banks have.
How can I apply for a mortgage with a B-Lender?
Many B-Lenders are open to the public, but some mortgage lenders only work with mortgage brokers.
A mortgage broker can help you connect to numerous mortgage lenders, including A and B Lenders, to help get the best mortgage rate for you.
They can also help negotiate on your behalf, help with the mortgage approval process, and can even pass on a portion of their commissions to you through mortgage buy-downs.
Thanks for reading! Please let me know your thoughts and comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.