The Differences Between the Big 5 Banks and B Lenders

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Are you up to speed on your mortgage lingo? While most homeowners know basic terms like mortgage term and amortization, fewer know what a B lender is. For most a home is the single largest financial transaction of your lifetime. With six figures of debt to your name, ideally you’d like to qualify for the lowest mortgage rate possible. Unfortunately, that’s not always possible, especially if you have less than stellar credit. That’s where B lenders come into the picture.


What are the Different Type of Mortgage Lenders in Canada?

Mortgages are usually classified based on the default risk faced by the mortgage lender. In Canada, there are three levels of lenders: A lenders, B lenders and Private lenders. A lenders (also known as prime mortgages) are the cream of the crop lenders like the big banks and credit unions. With an A lender, you qualify for a mortgage based on your income and credit. A lenders represent the lion’s share of lending in Canada. Would be homeowners typically start out by applying for mortgages with an A lender.


What is a B Lender?

If you’ve been turned down by an A lender, that’s when B lenders usually come on the scene. B lenders are financial institutions big and small offering subprime mortgages to those who don’t qualify with the big banks. Common reasons for being turned down by the big banks include self-employed individuals, those who lack income, have bad credit or who recently filed for bankruptcy.

B mortgages are considered riskier since lenders typically rely heavily on a property’s equity to offset the higher default risk. As such, B lenders typically charge a higher mortgage rate than traditional lenders like the big banks. You can expect to pay about 1 percent to 2 percent higher than A lenders. On top of that, you’ll usually pay fees of 2 percent to 3 percent. B lenders are considered an alternative lending source for those who would still like to borrow money, even if it’s at a premium. Just because you’re dealing with a B lender, doesn’t mean you should settle for less than stellar service. B lenders typically offer service on par with A lenders.

Similar to A lenders, you’ll still need to provide proof of income and your credit score when applying for a mortgage with a B lender. Although the minimum down payment in Canada is 5 percent, B lenders will typically look for a down payment of at least 15 percent. This helps offset and higher risk and ensures homeowners are less likely to walk away from their home, leaving the mortgage lender on the hook for the outstanding balance.

Subprime lending is typically short-term borrowing. Most homeowners will take a short-term loan until they can improve their credit score or have sufficient income to qualify for a prime mortgage. Although 5 year mortgage terms are most popular with Canadians, B lenders usually offer shorter mortgage terms, ranging from 1 to 3 years.


Should Someone with Good Credit Consider B Lenders?

If the interest rate offered by the B lender is competitive with the big banks, why not? Although a lot of homeowners are weary of B lender, you shouldn’t be. If a B lender is willing to offer you a mortgage rate lower than the big banks, why not consider them? You could save thousands in interest over the life of your mortgage and be mortgage-free years sooner.


Why would someone pick a B lender over the big 5 banks?

With the big banks controlling the lion’s share of the mortgage market, to win market share B lenders typically offer more competitive interest rates. Besides obtaining a better mortgage rate, B lenders usually have less costly mortgage penalties and offer more generous mortgage prepayment privileges. With all those advantages, why wouldn’t you consider a B lender?

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Vik Palan

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