Many people wonder what the alternative lending market for mortgages is, also referred to as the B market or sub-prime market and who should be looking to these B-lenders for their mortgage financing.
Watch the video below to hear Diane Bertolin, mortgage agent explain the alternative lending market.
A-Lenders or Traditional mortgage lenders are banks & credit unions that cater to customers with good credit scores & reliable income. These tend to be the Schedule One banks including National Bank, CIBC, BMO, RBC and the like.
B-Lenders refer to institutions that offer a lower barrier of entry to qualify for their mortgage products, but can offset their risk with a higher interest rate, making up the alternative lending market. Their clients tend to be people who need to have their mortgages held for a year or two before being able to qualify for a traditional mortgage.
There are lots of reasons why people may look to the alternative lending market for their mortgage financing, including:
- People who are self-employed & need to prove income.
- Someone who was laid off for a period of time & are now re-employed.
- Someone who was discharged from a bankruptcy or consumer proposal.
- Recent Immigrants with little credit history in Canada.
Here are some players in the alternative mortgage lending market:
- Credit unions in Ontario can cater to the A market or B market, or both depending on their mandate.
- Private Lenders are individuals who lend out their own money. These loans tens to have the highest interest rate as the lenders are taking on tremendous risk. There are lots of reasons why individuals may need a private lender, they may have fallen into tough times, have some blemishes on their credit history, or could be self-employed.
With all mortgages, you need to read the details of every mortgage that you are signing. You need to understand if you can afford that monthly payment before making the long term commitment to a mortgage.
If you are working with a good mortgage agent, they will find you a suitable mortgage that meets your financial goals. You want to get out of the B marketplace as soon as you can, so you tend to take a shorter term with some of these lenders to build your credit up. Make your mortgage payments every month, don’t max out your credit cards, and when your mortgage is due, you will have built your credit up to be able to negotiate with an A lender for a traditional mortgage with a better interest rate.