When it comes to securing a mortgage, the lender you choose can make a significant difference in your rates, terms, and overall borrowing experience. Mortgage lenders in Canada generally fall into three categories: Prime (A), Alternative (B), and Private © lenders. Let’s break down each type, what they offer, and who qualifies.
Prime (A) Lenders: The Best Rates for Low-Risk Borrowers
Prime lenders, also known as “A” lenders, include big banks, credit unions, and monoline lenders that offer the most competitive interest rates and terms. However, to qualify, you must meet certain criteria:
- Credit score: Typically, over 680
- Income: Stable, verifiable, and sufficient to cover your mortgage payments
- Property: A marketable home in an urban or suburban location
The advantage of working with a prime lender is clear: lower interest rates and minimal upfront fees. These lenders cater to low-risk borrowers, making them the go-to option for those with strong financial profiles.
Alternative (B) Lenders: A Solution for Those Who Fall Outside Prime Criteria
If you don’t meet the strict requirements of a prime lender, alternative (or “B”) lenders may be your next option. These lenders offer more flexibility but at a higher cost. They cater to borrowers with:
- Lower credit scores: Below 680
- Past financial issues: Such as missed payments or higher debt ratios
- Variable income: Like certain types of self-employed individuals or those with non-traditional income sources
Because alternative lenders take on more risk, their mortgages usually come with higher interest rates and upfront fees. A common fee is the commitment fee, often around 1% of the mortgage amount. For instance, a $200,000 mortgage may come with a $2,000 fee, in addition to a higher interest rate.
Private (C) Lenders: Short-Term Solutions for High-Risk Borrowers
Private lenders, including individuals or Mortgage Investment Corporations (MICs), provide mortgages to those who don’t qualify with prime or alternative lenders. These lenders put more emphasis on the property’s equity and marketability than on the borrower’s credit profile. Private lenders often cater to:
- Individuals with severe credit issues: For example, those with multiple bankruptcies
- Unusual property types: That may not fit traditional lending criteria
- Urgent financial needs: Such as borrowers requiring quick approval or those facing foreclosure
Private mortgages come with much higher interest rates and fees compared to prime and alternative options. They are typically short-term, ranging from 6 to 36 months, and often offer interest-only payments. These loans are designed to help borrowers manage financial difficulties, such as catching up on missed payments, until they can improve their credit and refinance with a more traditional lender.
Choosing the Right Lender for Your Situation
Understanding the type of lender you qualify for is crucial in finding the best mortgage for your needs. While prime lenders offer the lowest rates, alternative and private lenders provide solutions for those facing financial challenges. Knowing your credit score, income stability, and property’s marketability will help guide you toward the right lender, whether it’s a big bank, a monoline lender, or a private investor.
By working with a qualified mortgage agent, you can explore all your options and make an informed decision on which lender is right for you.
