Types of lenders
A and B lenders
What is a lender?
A lender is a person, group of people or institution that makes mortgage funds available to borrowers. They may be financial institutions, government agencies or individuals, and include:
- banks
- financial services cooperatives
- insurance companies
- mutual insurance companies
- mutual aid societies
- savings companies
- trust companies
- loan companies
- retail associations within the meaning of the Cooperative Credit Associations Act (S.C. 1991, c.48)
A lenders
A lenders, also known as “preferred” mortgage lenders, include the six major Canadian banks (CIBC, TD, Scotiabank, National Bank, BMO, RBC) and a few other lenders who are able to provide the best mortgage rates available.
Typically, these lenders have higher borrowing requirements and will only lend money to applicants with a good credit history.
To be approved for a mortgage with an A lender, a buyer must also be able to meet the requirements of a mortgage stress test. Implemented in 2018, this test requires an applicant to qualify for a loan at the higher of the Bank of Canada benchmark rate or the lender’s rate + 2%
Although it is more difficult to qualify for an A lender or a top-tier mortgage, these lenders usually offer better rates and overall terms.
B lenders
If an applicant does not qualify for a loan from an A lender, he may be able to get a loan from a B lender.
B lenders are not as strictly regulated as A lenders, but they are often more flexible with mortgage approvals.
Other types of lenders
Alternative lenders
The qualification criteria used by A lenders may be too restrictive for some borrowers. Alternative mortgage lenders may use different criteria or be more flexible in their application. This can enable a buyer to obtain financing in cases where he does not have a down payment equivalent to at least 20% of the purchase price of the property, and therefore cannot qualify for a conventional loan from an A lender.
Alternative lenders include private mortgage lenders, some credit unions, monoline and B lenders, and small banks.
Private mortgage lenders
A private mortgage lender is an individual or enterprise that lends money privately, and does not have to meet the regulatory requirements of banks and other financial institutions. This allows them to set their own conditions, both for the approval process and for the mortgage itself. Private lenders come in many forms. They may be a friend, a family member, a company or an operator specializing in private loans.
While they may be more flexible, private lenders usually charge higher interest rates. The conditions attached to loans can also differ greatly from those granted by A lenders.
Lenders dedicated exclusively to money lending
Some lenders restrict their activities to lending money. Such a lender usually has no branch offices, does not offer other related services (credit cards, deposit accounts) and usually deals directly with mortgage brokers.
These lenders include mortgage investment companies and publicly and privately traded companies. This type of lender can offer rates comparable to A lenders, but with conditions that are specific to them.
Credit unions
Unlike banks, credit unions in Canada are owned by their members. They are not-for-profit organizations, which means that profits are returned to members in the form of dividends, or invested in the local economy.
In Canada, credit unions are generally regulated by the provincial government. In 2012, the Canadian government introduced legislation allowing credit unions to become federally regulated.
Credit unions are particularly prevalent in Western Canada and Québec. The Desjardins Group is the largest lender of this type in Québec.
Small bank lenders
All banks in Canada are licensed and regulated under the Bank Act.
Smaller banks, such as Laurentian Bank in Québec, are also governed by the Act. According to the Office of the Superintendent of Financial Institutions, Canada had 80 banks in 2023. So there are plenty of alternatives to the larger, better-known banks.
