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What is Alternative Lending?


When traditional lenders like banks or credit unions decline your mortgage application, it’s easy to feel discouraged. However, it’s important to know that alternative options are always available.

If you require a mortgage but don’t meet the requirements of traditional institutions, you’ll find yourself in what’s commonly known as the “Alternative-A” or “B” lending space. This sector consists of three types of lenders:

  1. Alt-A lenders: These include banks, trust companies, and monoline lenders. They are large institutional lenders regulated at both the provincial and federal levels. Alt-A lenders offer products that cater to consumers with broader qualifying criteria for obtaining a mortgage.
  2. MICs (Mortgage Investment Companies): Like Alt-A lenders, MICs are structured according to the Income Tax Act. They consist of incorporated lending companies formed by a group of individual shareholders who pool their funds to lend out on mortgages. While MICs have their own specific qualifying criteria, they generally operate with even more flexible requirements.
  3. Private Lenders: Typically, private lenders are individual investors who lend their personal funds. Sometimes, they may also be companies specifically created to provide mortgages with a higher risk of default. Private lenders are generally unregulated and tend to serve borrowers with a higher risk profile.

In all the above classifications, the pricing of a mortgage is based on risk. The broader the guidelines for a particular mortgage contract, the higher the risk the lender assumes. As a result, borrowers usually face higher costs in the form of interest rates.

Before considering an alternative mortgage, it’s essential to ask yourself some questions:

  1. What is now preventing me from qualifying for a traditional “A” mortgage?
  2. How long will it take for me to address this issue and qualify with a traditional lender?
  3. How much do I need to improve my credit situation or score?
  4. How much do I currently have available as a down payment?
  5. Should I wait until I qualify for a regular mortgage, or do I need to secure a home quickly?
  6. Can I sustain this mortgage? Can I afford the higher interest rate?
  7. Can I switch lenders if the current lender doesn’t renew the mortgage or if I can no longer afford this alternative option?

If you are ready to proceed with an alternative mortgage due to a lower credit score or because you don’t want to wait for qualification with a traditional lender, here are some additional questions to consider when reviewing alternative mortgage products:

  1. What is the interest rate, and are there any associated fees? How are these fees paid?
  2. What is the penalty for missed mortgage payments, and how is it calculated? What are the costs of exiting the mortgage entirely?
  3. Is there a prepayment privilege? For instance, can you make higher mortgage payments without penalties?
  4. How much will each monthly mortgage payment cost?
  5. What happens at the end of the mortgage term? Is renewal an option, and what are the associated costs, if any?
  6. What does the fine print entail?

The alternative lending space can be complex. If you’re considering an alternative lender, contact us by clicking the link below. Our team of experts is here to answer your questions and help you achieve your financial goals.

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