A vs. B Lending
A vs. B Lending -- What's the difference? Many of us fear getting into "B" Lending. We're so accustomed to the big "A" banks that getting into "B" lending sounds like we're unsavvy borrowers who can't get a regular loan with best rates. However, that's not true! Not every mortgage financing situation for each property will be black and white. Each time you purchase a new property your current financial situation will be different (ie: heavier debt load, new jobs, etc.). Imagine "A" lending is a steel box: either everything fits into it, or it doesn't. Now, imagine "B" lending is a cardboard box: you can stuff more in, the sides might bulge out, but as long as it fits -- it sits. This is where the beauty of "B" lending comes in. Think about it as your flexible financing option, and we're very lucky to have access to it!
TOPIC
Lenders
AUTHOR
Jessica Kuan
A Lending
Who are our "A" Lenders?
When referring to "A" lending we are typically referring to our Big Five Banks (TD Bank, Scotiabank, CIBC, BMO, and RBC). They are our brick and mortar business, and almost all of us have banked with at least one of the big five banks in our lifetime. Our big banks are federally regulated, and lending policies must fall within government regulation. Therefore, lending guidelines between the big banks are quite similar and very black and white.
Stricter Lending Policies
In 2018, with the government's aim to cool BC's real estate market, Canada experienced multiple changes in the lending landscape. Policies tightened and became stricter than ever. Not only did qualification requirements decrease clients' borrowing power, it also made it difficult for those without any income to obtain a mortgage at all!
"A" lending is always the first choice we will recommend. We will always take the time to explore "A" side lending for our clients first. However, not everyone can obtain the loan they're looking for through the big banks. This is when the opportunity will open up into "B" lending!
B Lending
What are "B" Lenders?
"B" lenders are known to be more flexible lenders. Although they must also comply with OSFI regulations, they tend to look at each scenario case-by-case. For example, if you are a business owner who reports lower income on your tax returns due to writing off business expenses, "B" lenders have the flexibility of looking at other documentation that may better represent your true business income. Another example is working with clients with bad credit history or bankruptcy. "B" lenders will take their time to dissect every clients' situation, as they understand that life experiences can have an effect on our credit history.
Everything sounds great, so what should I be aware of for "B" Lending?
Mortgage rates on the "B" side are higher. You should expect a rate between 3.99% to 5.99% plus a commitment / lender fee that is charged upfront. The reason rates are higher and there is a one time fee, is because these mortgages are deemed riskier to the lender. However, keep in mind that these rates are quite favourable compared to the market increase we've experienced in the last 5 years.
Secondly, because "B" lenders lend on a case-by-case scenario, there are typically more documents required for the application. "B" lenders approve based on reasonability, and because they are still federally governed, they must comply with the regulators and ensure they are diligent with their approval.
"B" lenders allow borrowers who cannot obtain a traditional mortgage access into the real estate market
"B" lenders are great resources to have, as they may provide the flexibility and loan amount you are looking for. They help many borrowers, who cannot obtain a mortgage at a big bank, enter into the real estate market. After 1 to 2 years, we always reassess our clients' financial situation to see if we can place them back at an "A" lender during their mortgage renewal!
To get yourself familiar, here are a few "B" Lenders:
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Street Capital Bank of Canada
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Equitable Bank
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HavenTree Bank
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Home Trust