A Lender vs B Lender Mortgages

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Lenders in Canada can be categorized into 2 groups: A lenders and B lenders. Each group has its own set of approval requirements and caters to Canadians’ diverse needs. This post will examine the difference between A and B lenders and when you may consider choosing one option over the other.
Key Takeaways
- A lenders have strict eligibility and borrowing criteria but offer more competitive rates.
- B lenders offer mortgage solutions for borrowers who may be unable to meet the requirements for A lending.
- Choosing a lender depends on your financial situation, credit history, and risk tolerance.
What Is an A Lender?
A lenders include banks regulated federally, credit unions regulated provincially, and other financial institutions. These lenders are typically for borrowers with a stable and predictable income, a good credit score, and lending ratios that fall within lending criteria.
Interest rates offered by A lenders are typically lower because they offer government-backed default-insured mortgages or are backed by depositors, lending only to low-risk borrowers. You must pass the stress test to be approved for a mortgage with an A lender.
Examples of A Lenders in Canada
- Bank of Montreal (BMO)
- Canadian Imperial Bank of Commerce (CIBC)
- Desjardins
- Laurentian Bank
- National Bank (BNC)
- Royal Bank of Canada (RBC)
- Scotiabank
- Toronto Dominion (TD)
What Is a B Lender?
B or subprime lenders include financial institutions and mortgage investment corporations (MICs). They typically serve borrowers who are unable to meet the lending criteria for an A lender. B lending is most suitable for individuals who require an exception on debt servicing ratios due to limited personal income as a registered corporation.
Interest rates offered by B lenders are usually higher than those offered by A lenders since the risk to both the borrower and lender is higher. This lending solution tends to be more adaptable as there is no default-insured lending, but borrowers will typically require a downpayment of 20% or more to secure financing.
Examples of B Lenders in Canada
- Equitable Bank (B)
- First National (B)
- Home Trust (Classic)
- MCAP (Eclipse)
- Merix Financial (Lendwise / NPX)
- XMC Mortgage Corporation (Uninsured)
- Optimum Mortgage (CWB)
- RFA (non-prime)
Difference Between A Lender and B Lender
The main difference between A and B lenders is the qualifying criteria to be approved for a mortgage.
A lenders typically require a credit score of at least 650, a minimum 5% downpayment, and lending ratios of 32 to 39 for GDS and 40 to 44 for TDS. Mortgage terms can be anywhere from 6 months up to 10 years. Amortizations for default-insured mortgages cannot exceed 25 years, and uninsured mortgages cannot exceed 30 years.
B lenders typically require a credit score of at least 500, a minimum downpayment of 20%, and lending ratios of 35 to 55 for GDS and 42 to 70 for TDS. Mortgage terms are typically shorter, ranging from 3 months to 3 years. Amortizations on the B lending side can be extended up to 40 years.
When to Consider an A Lender
You should consider an A lender if you are a borrower with good credit, 2 years of stable income that can be verified, acceptable debt service ratios, and the minimum amount saved for a downpayment. A lending is typically considered by salaried employees with 2 years of stable income, a credit score of 650 or higher, a GDS between 32-29% and a TDS between 40-44%.
When to Consider a B Lender
If you have a lower credit score, irregular income that is hard to verify, or limited Canadian credit history, you should consider a B lender. Self-employed individuals benefit most from B lending as it allows borrowers to leave their income in the corporation. The interest-carrying costs with B lending are typically less than the annual personal income taxes a self-employed borrower would need to pay to show stable income and qualify for the same mortgage through A lending.
B lending can also be considered if you have high equity or net worth and lack the verifiable income needed to qualify through A lending. However, some A lenders may offer total wealth solutions for this type of borrower.
Understanding Your Risk Tolerance
If you’re currently deciding whether to go with an A lender or B lender, you should base your decision on your financial situation and the amount of risk you are willing and able to take. Your mortgage strategy should include assessing how each solution helps you attain your short- and long-term goals and identify the potential risks involved.
If you need help finding a tailored solution to match your mortgage needs, consider using a mortgage professional. They will have access to various solutions and can help you find the best rates, terms, and conditions for your mortgage.
Frequently Asked Questions
Which mortgage lenders provide the best interest rates?
A lenders will typically offer the best mortgage rates. This is because they have strict lending criteria they adhere to reducing their risk. However, the rates you may be offered will vary depending on your credit score, qualifying ratios, loan-to-value (LTV) ratio, amortization, and transaction type.
Do I require a 20% downpayment to go with a B lender?
A minimum 20% downpayment is required with a B lender as they do not offer default-insured lending.
Which lenders are more flexible with lending criteria?
B lenders are typically more flexible and are best suited for borrowers who cannot qualify for A lending due to strict qualification criteria.
Final Thoughts
Many lenders offer options for borrowers to secure a mortgage. Deciding between an A and B lender should not solely be based on the interest rate but rather on finding the best mortgage solution that aligns with your goals, financial situation, and risk tolerance.
Are you looking for a mortgage solution that meets your needs? Contact us today, and let us help you find the right mortgage.