There are several options when it comes to securing a mortgage – beyond the banks. From a very young age we learn about banks – we use that word synonymously with anything to do with saving, spending and moving money around. However, when it comes to mortgages and loans, what we should be referring to is actually “lenders” or “lending institutions”, as that is a more general description for the many places we as Canadians can go to help us manage our money, loans, mortgages and investments. There are many options and opportunities out there, so let’s go over some key points about lender choices we have in Canada.
The most popular, and largest of all lenders are the banks. In Canada, there are 5 “big banks” that we all know of, who usually have numerous branches in every town. Banks offer a large variety of services beyond a basic bank account; they have several services and products that they promote and advertise. You can set up investment accounts, tax-free savings accounts, RRSPs, RESPs, credit cards, lines of credit, wealth management, mortgages, and various loans. Banks are regulated by the Bank of Canada, and although they can have varying service fees, interest rates and so on that differ from other banks and lenders, they have limitations and standard guidelines to adhere to.
Most of us opened our first accounts with one of these institutions, and have been loyal customers over the years. When people go to apply for a car loan, mortgage or line of credit, they are often shocked to learn that their bank has turned them down, even though they have been great customers. The good news is that the bank is not the only option.
Credit unions are financial institutions that work on a co-operative basis. Credit unions were originally created by organizations, trade unions, and other groups specifically for their members or employees, but are fully open to the public. Credit unions are locally owned and operated (under provincial, not federal, jurisdiction) by their members as a non-profit, which means they don’t need to satisfy their shareholders like the banks do. Credit unions are often noted for their enhanced customer service, lower fees, and provide a wide variety of services and products beyond a standard account. As a result, they have become significant contenders along with the big banks.
Trust companies are a federally incorporated, legal entity that act as guardians of funds on behalf of a person or business. However, because they are not bound by the same laws and regulations as banks, they have more flexibility in who they can lend to, and how they lend to them. They typically provide more personalized service and products, but have higher interest rates to compensate for the increased risk they take on. However, if you’re in a bind and the bank will only lend you $75,000 and you need $200,000, paying the higher interest rate now is more beneficial than taking on several smaller loans – as this would negatively impact your monthly cash flow.
Mortgage Investment Company (MIC)
A Mortgage Investment Company (MIC) is an umbrella investment company that specializes in mortgage funding. Shareholders (usually real-estate investors) invest money into the company jointly to fund a pool of mortgages, and then receive a regular dividend. As new funds are added to the pool, more mortgages are approved and funded. MICs charge higher interest rates due to the increased risk they take on – often for people who have been turned down by other lenders. Also, MICs are unregulated, meaning that the mortgages they provide don’t follow any provincial or federal guidelines. Additionally, MIC mortgages are not insured by Canada Mortgage & Housing Corporation (CMHC) or any other mortgage insurer.
A private lender is a non-regulated person or company that loans money to individuals and businesses that have been unsuccessful in securing funding elsewhere. They have shorter loan terms, and charge high interest rates due to the high-risk factors of their clients, and usually have additional fees. As a result, they should be used as a last resort.
The Right Choice for You
When it comes to securing a mortgage for your home, condo, cottage or business, there are many options available to you aside from the bank on the corner. In today’s competitive world, there is no need to settle for any service provider that doesn’t have your best interests at heart. Meet with your mortgage broker to review your options, rates, and needs before starting your plan of action for your next home purchase. If you’re looking to secure a mortgage, or your renewal date is around the corner, give me a call at 705-230-1306. I’m always happy to answer your questions, and make your mortgage process as smooth as possible.