People will often ask if a mortgage is with an A or B lender, however few are aware of what these terms mean. The big banks will often refer to themselves as A lenders (which they are) with all others being B lenders in attempt to make themselves sound superior.

The truth is that this has nothing to do with the quality of the lender. It has to do with the profile of the client.

A lenders cater to borrowers with good credit and qualifying income.  B lenders cater to borrowers who do not fit within the guidelines of an A lender. People with poor credit, non-qualifying income, or other challenges would be declined by an A lender, but they are perfect candidates for B lenders.

 

Examples of A Lenders

  • Alterna Savings
  • MCAP
  • First National
  • Merix / Lendwise
  • XMC
  • RMG
  • CMLS
  • RFA
  • DUCA
  • Meridian Credit Union
  • Plus any of the major banks…. RBC, CIBC, BMO, National Bank, Scotia and TD

 

Examples of B Lenders

  • Home Trust
  • Equitable Bank
  • Community Trust
  • Haventree Bank
  • ICICI Bank

 

While A lenders look for qualifying credit and income, B lenders focus more on the equity in the home. The minimum down payment with a B lender is 20%, however each application is assessed individually, and down payment / equity requirements can vary.  In some cases, the lender may require 25, 30 or even 35% down payment / equity in the property for them to consider lending on it.

Location is another important consideration. B lenders have a preference for properties in larger areas, as they consider them to be more saleable. A home in Toronto would be of more interest to them than a home in Parry Sound for example. The further away from a metropolitan area, the harder it can be to find a B lender interested in lending on that property.

 

How Mortgage Rates Differ Between A and B Lenders

As B lenders are taking on more risk, their rates are approximately 1.25% – 2% higher than rates from A lenders.  B lenders will usually charge a 1% lender fee as well. They are meant to be short term solutions, so the term length is usually only one or two years.  The idea is to convert your mortgage to an A lender at significantly lower rates once your credit or income situation improves.  Every situation is a little different however.

 

An A Lender Can Also Be a B lender

Huh?

Yes, that’s right.

Many A lenders will also have a B division, just as some B lenders have A divisions.  Therefore, they can be an A lender and a B lender at the same time, however they’ll usually lean to one side more than the other.

Home Trust and Equitable Bank are predominantly B lenders, however they also have an A side.

ICICI Bank would also be considered a B lender. They also have an A side, however it focuses purely on insured mortgages (purchases with less than 20% down payment and therefore requiring default insurance such as CMHC).

Most monoline lenders fall into the A category, but also have strong B divisions.  MCAP, XMC, Merix, First National, CMLS and RFA are all A lenders who also have a strong B side.

 

Private Lenders

There are always going to be situations where some may not qualify with either an A or a B lender.  In these cases, private lenders are there to pick up the slack. Private lenders are generally (but not always) individuals looking to invest their money in mortgages.  Rates are often between 7-8% on first mortgages, or 10-13% on 2nd mortgages. Private lenders will often charge a 1% fee, but in some situations the fee can be higher.  While brokers get paid by A and B lenders, we don’t get paid anything by privates, which means there will be a fee from the broker as well.  While private mortgages are the most expensive, they can bail people out of sticky situations without them needing to sell their homes.

Sometimes bad things happen to good people, and even the most solid and creditworthy individuals can go through rough patches where they need a temporary bail out. B lenders and private lenders can fill this requirement until they get their lives back on track.

Please leave any questions or comments below!