Mortgage Basics

A Lender vs B Lender Mortgages

A Lender vs B Lender Mortgages

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    In Canada, there are many mortgage lenders available to choose from to meet a variety of needs. These lenders are broadly divided into A lenders and B lenders. Each type of lender has specific approval criteria that can vary depending on their risk appetite. But what do these terms mean, and why do they matter when securing a mortgage?

    With so many lenders out there to choose from, this post will compare A and B lenders, helping you understand how to evaluate which type may be the best fit for your financial situation.


    Key Takeaways

    • A lenders have stringent qualification and lending criteria and more competitive mortgage rates.
    • B lenders provide an alternative mortgage solution for borrowers who may not qualify for A lending. 
    • The choice between an A and B lender largely depends on your financial situation, credit history, and risk appetite.

    Are you a first-time buyer?

    What is an A Lender Mortgage?

    A lenders are traditional lending sources, including federally regulated banks, provincially regulated credit unions, and other financial institutions. These lenders generally cater to borrowers with strong credit histories, acceptable debt servicing ratios, and stable, predictable, and verifiable income. 

    The interest rates offered are typically lower because A lenders offer government-backed mortgages or those backed by their own depositors while having strict lending criteria and will lend only to those with lower risk profiles. To be approved, borrowers would need to pass the stress test requirements. Though meeting the strict lending criteria could be challenging, qualifying for a mortgage with a prime lender will ensure you get some of the best rates

    Top A Lender Mortgage Providers in Canada

    What is a B Lender Mortgage?

    B lenders, also known as subprime lenders, can include financial institutions and mortgage investment corporations (MICs). These lenders cater to borrowers who may not qualify for a mortgage with an A lender. Most commonly, this lending solution is used by those who need an exception on their debt service ratios due to a lack of personal income if registered as a corporation or the offered solution is non-income qualified (NIQ).   

    The interest rates offered by subprime lenders may be higher than those offered by an A lender due to the higher risk to the lender and borrower. However, this lending solution is typically more flexible as it does not provide default-insured lending, requiring a 20% or greater downpayment for a home purchase. 

    Top B Lender Mortgage Providers in Canada

    • CMLS (Aveo)
    • 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)

    A Lender vs B Lender: Key Differences

    When comparing A and B lenders, the major differences exist in their acceptable qualifying criteria. The following describes the key differences between these two types of lenders.

    Qualifying Criteria A Lenders B Lenders
    Credit score requirements Minimum 650 Minimum 500 (owner-occupied fixed rate)
    Minimum 600 (owner-occupied variable rate)
    Required downpayment Minimum 5% Minimum 20%
    Amortization Up to 30 years Up to 40 years
    Lending ratios GDS/TDS (%) 32/40 to 39/44 35/42 to 55/70
    Mortgage rates offered Prime rates Typically prime rates + 3 to 5% 
    (depending on the amount of lender and broker fees charged) 
    Fees and penalties IRD or 3 months interest or % of remaining balance IRD or 3 months interest or % of remaining balance
    Length of term Up to 10 years Typically 3 months to 3 years

    Who Should Consider an A Lender Mortgage?

    Borrowers with good credit, verifiable income, acceptable debt service ratios, and at least the minimum downpayment required should consider A lending. 

    • Salaried employees (2 years verifiable income)
    • Credit score of 650 or above
    • GDS between 32% and 39%, and TDS between 40% and 44%

    Who Should Consider a B Lender Mortgage?

    Borrowers who have a lower credit score, irregular or unverifiable income sources, or limited Canadian credit history should consider B lending. 

    • Self-employed (though some A lenders may offer Alt-A options)
    • High equity or net worth (though some A lenders may offer total wealth solutions)
    • Credit score of 650 or below

    Self-employed borrowers benefit the most from B lending. The interest-carrying costs are typically less than the annual taxes on the higher income needed over 2 years to qualify for the same mortgage through A lending. B lending allows self-employed borrowers to leave their income in corporations to avoid personal income taxes.

    Understanding How Much Risk You Can Take On

    Your choice between A-Lenders and B-Lenders should be based on your financial situation and how much risk you’re willing to take. A-Lenders could offer you the best rates if you have a stable income and a good credit score. However, despite the higher interest rates, B-Lenders might be a better option if your income is inconsistent or your credit score is low.

    It’s important to look at any mortgage strategy on a risk assessment basis and compare your potential savings to the amount of downside risk you’re willing to take on. This can be done through assessing how a chosen solution helps you attain your short and long term goals while seeing what risks may be present in both the short and long term.

    If you’re unsure which type of lender is right for you, consider using a mortgage broker. They can help you customize a solution while finding you the best rates, terms and conditions to match your mortgage needs.

    If you’re looking for a mortgage lender that offers competitive rates and an easy application process, consider nesto. We provide a digital platform that simplifies the mortgage application process helping you find the best rates from multiple lenders. 

    Frequently Asked Questions

    Which lenders offer better mortgage rates?

    A lenders typically offer better mortgage rates; however, they come with stringent lending criteria reducing risk for themselves. However, the rates offered will vary depending on your individual circumstances.

    Are B lenders more lenient than A lenders?

    B lenders are generally more lenient and flexible when it comes to qualification criteria, as they can consider alternative income sources and make exceptions for higher debt servicing ratios. They are often the best option for borrowers who don’t qualify for A lending due to strict qualification criteria.

    Do all B lenders require a 20% downpayment?

    B lenders require a minimum downpayment of 20% as they do not offer default-insured mortgages.

    Do B Lenders provide better mortgage rates than the Big Banks?

    B lender mortgage rates are typically higher than those offered by big banks due to the increased risk these lenders take on through approving borrowers who do not qualify for A lending.

    Final Thoughts

    Many mortgage lenders in Canada provide solutions for borrowers to obtain a mortgage. Choosing between an A or B lender is less about which option provides the better rate and more about the most suitable mortgage solution that matches your financial situation and risk tolerance. Whether you’re a first-time buyer, self-employed, or unable to meet the strict lending criteria of A lenders, many B lenders offer mortgage options tailored to your needs.

    Are you looking for a solution that meets your needs? Consult with a mortgage expert at nesto today, and let us help you find the right solution for your needs.  


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