MORTGAGES A, B, C's... IT'S AS EASY AS 1, 2, 3
Do you know there are different types of Financial Institutions and Lenders for Mortgages, more than just the BIG BANKS?
Do you know that in Canada, we have THREE distinct TIERS OF MORTGAGES that offer solutions for all of Life’s Moments?
Do you know the difference between an A, B, and C lender?
If the answer is no, you are not alone! It’s a big jungle within the mortgage lending market, but don’t fear! We are here to help you navigate the jungle and educate you every step of the way!
Types of Mortgages: A-lenders
A-lenders are also known as a ‘PRIME’ mortgage lender. A Prime mortgage lender includes but is not limited to federally chartered banks, mono-line lenders, and provincially regulated credit unions.
Generally, these lenders will have the strictest lending requirements (credit, income, property) since they are looking to lend to applicants with the lowest level of risk; while having the highest financial stability.
Typically these lenders will only lend to borrowers with good credit, strong employment history, and stable income, with a low debt-to-income ratio. To be approved, you also must pass a mortgage stress test (meaning you have to qualify by 2% higher than what you pay).
When qualifying for a Prime mortgage, you will be compensated with some of the best rates in Canada. AND When working with a Mortgage Broker, you will be offered better options for penalties, prepayment and education to help with future financial goals.
Types of Mortgages: B-lenders
Let’s talk B or Subprime Lenders, called “Alternative Lending.”
In some cases, even with excellent credit history and a stable income, some Canadians do not qualify for a mortgage with a prime lender typically because of their debt-to-income ratio.
Subprime lending is an option when borrowers do not meet A lender’s requirements. Subprime is more flexible but does not offer default-insured lending, making it a higher risk for both lender and borrower; therefore, its rates are priced higher on average.
This form of alternative lending may offer higher rates in line with the risk they are taking; however, they provide Canadians who need to meet typical stress testing guidelines a path to homeownership.
Some lenders will offer prime and subprime lending through separate arms of their mortgage business. And some big lenders may offer alternative lending through their prime business due to their relationship with the client and the specific risk the lending poses for them.
Types of Mortgages: C-lenders or Private Mortgage Investment Corporations (MIC), Other Lenders
Private Lending means it is Typically INTEREST ONLY Payments and is not an amortized mortgage.
A Private mortgage lender is an individual or corporation that lends money privately, setting their terms and conditions for both the approval process and the mortgage itself. These lenders come in different forms ranging from a friend, a family member, a business or a wealthy individual specializing in private lending like a mortgage investment corporation.
These Private Lenders can set their terms and rates since they are not regulated like banks or financial institutions; they are operated like a mortgage, as you have to be represented by a Lawyer.
Although private mortgages can be costly, they offer a short-term solution to help clients who do not meet all the typical risk appetites of prime (A lender) or subprime lenders (B Lenders). The key is to have an exit strategy to pay out the private mortgage for the client and the lender.
If you DO NOT have an exit strategy to get out of private lending, you SHOULD NOT be in a private mortgage.
Private Mortgages are ONLY short-term solutions to help find better-suited options within a year or two.
Education is power, and Experience is Key to any Mortgage you receive!
We always work with integrity, and our goal is for every client who may require a Private Mortgage to move up the ladder from C to B (a little higher rate but still paying interest and principal) to A (Best Rates).
Have questions?
Book a call at (705) 429-5492 or online at www.MullenandMullen.ca
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