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
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
- They often offer lower
- 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
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.
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