Monoline Lenders vs the Big Five Banks
When it comes time to select a financial institution of fund your mortgage, there’s a good chance that one of these will be your choice: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce. These banks are colloquially known as the Big Five. They are the dominant players in the banking industry, providing a multitude of financial services to most people, including the funding of mortgages.
But there’s another group of lenders referred to as “monoline lenders”. These lenders also cater to people planning on acquiring a mortgage, but their terms and conditions differ. Because selecting the right kind of mortgage to finance your home is of paramount importance, it’s worth examining investigating what monoline lenders are and how they differ from the traditional banks, so that you have a solid grasp of all the options available to you.
Monoline lenders are niche businesses that operate in the mortgage market only. They don’t offer bank accounts, credit cards, GICs, or investments through RRSPs as the Big Five banks do. Mortgages are their sole specialty.
Unlike the Big Five banks, you can usually only access monoline lenders through licensed mortgage brokers. They also don’t have storefronts and don’t advertise, which is why you may be unfamiliar with them.
Some of the major monoline lenders in Canada include Merix Financial, Street Capital, Canadiana Financial, and First National.
If monoline lenders offer only mortgage financing, why should you even consider them? After all, wouldn’t it be easier and more convenient to obtain a mortgage from your own bank, where you already keep all of your money and investments?
The reason you should evaluate monoline lenders as potential candidates for your mortgage funding is that they may be able to offer you a mortgage contract that the traditional banks won’t.
Here are some of the advantages of a monoline lender:
- They often offer lower mortgage rates
- They’re more accommodating to people with weak credit scores and inconsistent incomes
- They offer more options for people who are property investors or who are self-employed
- They usually have attractive prepayment privileges and very low prepayment penalties
- They offer unique mortgage products, such as the 35-year amortization
- They won’t pressure you to purchase other financial products
- They don’t register a collateral charge on your property, so when it comes time to renew your mortgage you have the option of selecting a new lender
- They deal only with mortgage brokers, who act independently and have a duty to act in the best interest of the client
Of course, you still might be wary of selecting a monoline lender to fund your mortgage. The Big Five banks have been around for a long time, are trusted and well-known by the general public, and regulated heavily through government legislation.
The truth is that monoline lenders are regulated by the Canadian government and therefore abide by the same rules as the traditional banks. They finance millions, or billions, worth of mortgages and are backed by major financial institutions such as pension funds. In the unlikely scenario that a monoline lender who services your mortgage goes bankrupt, your mortgage will simply be transferred to a new lender.
So don’t fear the monoline lenders! By taking the time to examine these sometimes unfairly overlooked lenders, you might find an even better mortgage deal than the one you originally had in mind.