As Canadians we are very blessed to have one of the strongest banking systems in the world.
This is because our banking system is highly regulated. Most Canadians know and deal with at least one of Canada’s big five banks. These banks have considerable brand power. Nobody blames you for not knowing about other very reputable, national, mortgage lenders. This article will educate you more about the rest of the credible and regulated lenders. Lenders that mortgage brokers have access to for excellent and better than big-bank mortgages.
It is important to understand the risks profile for mortgages.
Your mortgage lender is not taking a deposit from you. They are giving you money, so the true risk is all on the lender, not the borrower. So, many of the fears surrounding lenders that might fail are unfounded.
All AAA lenders in Canada are either regulated by the Office of the Superintendent of Financial Institutions (OSFI) and/or by a provincial regulator. The quick way to know whether you are working with a AAA lender is to pay attention to your mortgage rate. If your mortgage rate can be grouped in the low rate group in the market, you can be sure you are working with a AAA lender.
The risk that your mortgage lender will go out of business is very small. If you are a qualified borrower with provable income, you have no reason to be concerned. You get a mortgage from a different lender if your existing lender goes out of business.
This topic was also addressed in a Globe and Mail article: by Robert McLister in 2012.
Residential mortgage lenders can be divided up into the following categories and sub-categories:
1. AAA Lenders
These are regulated lenders that provide the best interest rates to AAA borrowers. The institutions themselves can have a physical branch presence or virtual. Because a lender is well known and considered to be a AAA lender, does not mean that they offer best mortgage for you.
a. Schedule I, II & III Banks:
OSFI currently regulates 29 Schedule I banks and 56 other banks. Some of the excellent, but lesser known banks that brokers work with are:
- Equitable Bank
- Canadian Western Bank
- CFF Bank
- Alterna Bank
- Bridgewater Bank etc.
b. Mono Lenders:
Mono lenders do one (mono) thing; lend money against mortgages. These are regulated by OSFI. They are large, reputable and provide mortgages to consumers through the broker channel. They provide the healthiest and best mortgages in the market with the lowest penalties. Some of these lenders are:
- First National, etc.
c. Credit Unions:
Credit unions are member focused and Canada has the world’s highest per capita membership in the credit union movement. Credit unions provide very good mortgages to its members. They are typically provincially regulated and there are more than 300 of them in Canada. Some of the largest credit unions are Desjardins, DUCA, First Ontario, Kawartha etc.
d. Insurance Companies
These are very large, OSFI regulated, insurance companies that offer mortgages to Canadians. For example: Industrial Alliance
2. Sub-prime Lenders
Sub-prime lenders are often known as “B Lenders” or “Alternate” lenders. Sub-prime lenders offer mortgages to borrowers with imperfect credit or income etc. that represent a higher risk to the lender. This lender risk is typically reflected in higher interest rates and lender fees. Many AAA lenders also have divisions that offer alternate mortgages to borrowers.
3. Trust Companies:
Although Trust companies can offer AAA mortgages, they are better known for offering alternate mortgages. OSFI are regulated and their interest rates are not as high as private lenders. Mortgage rules are tightening. Thus, many borrowers who previously qualified for AAA mortgage lenders now have no choice, but to work with an alternate lender.
4. Private Lenders
Private lenders depend more on the equity in the real estate than in the borrowers personal covenants. Borrowers with significantly imperfect situations typically seek mortgages from private lenders. In today’s rate environment, interest rates can vary from the high single digits to the mid-teens and fees are imminent.
a. Mortgage Investment Corporations (MICS)
MICs are not strictly private lenders.
They act like private lenders when it comes to:
- Interest rates
- Risk profile
- The types of clients they take on.
MICs are typically governed by the Ontario Securities Commission and the federal Income Tax Act. All MICs have to be audited externally every year.
b. Private Lenders
Lenders can be individuals or corporations and they are not regulated at all. Their rate and fee policies for proposed mortgages are set by the private lender itself. They typically provide mortgages to borrowers that depend on last resort solutions. These are the highest risk mortgages in Canada.
Any broker from Mortgage Allies has a wide variety of excellent lenders that they can place your mortgage with. If you want more choice, work with a mortgage broker who has your best interests at heart.