These mortgage-only credit companies offer lower rates and better terms than big banks
By Scott Nazareth
At mortgages.ca, we work with a variety of types of lenders, including banks, credit unions, trust companies and monoline lenders.
Never heard of monoline lenders? That’s no surprise. Also sometimes known as non-bank lenders, they work exclusively through mortgage brokers and don’t typically market themselves to consumers, so their names may seem unfamiliar at first.
What is a monoline lender, exactly?
These lenders only deal in mortgages. They don’t offer other services or types of credit. Nor do they maintain physical branches, instead offering service online or by phone.
What’s so great about them?
Because they have low overheads and streamlined business models, monoline lenders can usually offer lower rates than the big banks. That’s why mortgage brokers like them, and you should, too.
One other major factor that sets monoline lenders apart from big banks is their penalty structure on fixed rate mortgages. Monolines use a different formula than banks to calculate exit penalties.
So if you end up breaking your mortgage, the penalty on a monoline mortgage can be thousands of dollars less than that of a mortgage with a bank.
You may not plan to break your mortgage, but unexpected life events can get in the way of plans. According to this Globe and Mail article, about 70 per cent of borrowers must make changes to their five-year fixed rate mortgages before maturity because rates have dropped, or they’re moving to a bigger house, or their financial situation has changed.
Have I heard of these companies?
Probably not. That’s because they market themselves to brokers, rather than consumers.
Perhaps you’ve heard of First National, Canada’s largest monoline, and MCAP, the second largest. But you’ve probably not heard of RMG, CMLS, or some of the smaller lenders we work with.
Still, that doesn’t mean they aren’t reputable. Many have been around for decades, and a bit of internet research will reveal their legitimacy.
Are they secure?
Yes. Just like the big banks, monoline lenders are strictly regulated. In fact, they’re required to follow the same lending guidelines as the majors.
They’re not in the business of giving loans to high-risk borrowers. In fact, all monoline lenders secure their mortgages with insurance from one of Canada’s three mortgage insurers.
That low-risk business model means there’s little risk to the borrower if a monoline lender were to cease operation. As when Scotiabank took over ING Direct in 2012, another lender could simply take over the purchased company’s insured mortgages. There would be no impact on borrowers.
Is it right for me?
Some borrowers prefer to work with big banks and trust companies because they’re familiar with a company’s name and reputation. That’s understandable.
But if you’re interested in finding the best mortgage for your needs, you’ll need to open your mind to borrowing from a lesser-known lender. This may require a bit of research, as well as independent advice from a mortgage broker, who can help you understand how each product’s terms may affect you.
You’ll need to read the fine print on penalty calculations, portability, refinance limitations and more. The strings attached to some monoline mortgages can be onerous, but that’s true with loans from banks, credit unions and trust companies as well.
Want to learn more?
The mortgage landscape can be confusing. As independent mortgage brokers, it’s our job to educate you about the many options offered by the many lenders in Canada. We work with home buyers and major lenders to find our clients perfectly matched mortgage products.
Ready to get started? Go to our online application form.