Mortgage Basics #Loan Types

Main Types of Mortgage Lenders in Canada


Key Takeaways

  • A mortgage lender is any financial institution or individual that lends money to help people buy a home.
  • In Canada, mortgage lenders range from very large banks, to smaller banks, credit unions, alternative lenders, and even private lenders
  • When choosing a mortgage lender, make sure you find the best interest rates, and manageable monthly repayments, while also researching the terms and conditions of any prospective lender or mortgage product.

What is a Mortgage Lender?

A mortgage lender is any institution or individual, like a bank, credit union, or private lender, that provides a loan to purchase a property. A mortgage lender has specific criteria for approval, and these will vary by institution. There are many different kinds of financial entities that can act as mortgage lenders, and they will all have different regulations and approval criteria. 

Mortgage lenders set the terms and conditions of the loan based on the applicant’s credit history, employment, and debt to income ratios. Once approved, mortgage lenders will determine factors like the interest rate and repayment schedule, based on how strong an applicant’s profile is, and how likely they are to default on their repayments (otherwise known as risk).

What is a Mortgage Broker?

While a mortgage lender lends directly, a mortgage broker acts as an intermediary between an applicant and many potential lenders. While mortgage brokers don’t set the specifics of loans, they do help applicants find the best rates and lenders, address any issues in an application (like credit), and can collect and submit documents on an applicant’s behalf. They are licensed professionals who often have relationships with one or more mortgage lenders, and can therefore seek out exclusive rates and solutions that would otherwise not be available to some applicants. Mortgage brokers generally make a commission once a lender and applicant have entered into a contract.

Main Types of Mortgage Lenders

A Lenders

A Lenders, otherwise known as ‘prime’ mortgage lenders, include the Big Six Canadian banks (CIBC, TD, Scotiabank, National Bank, BMO, RBC) and a select few other lenders who are able to provide the best mortgage rates available. Generally, these lenders will have the strictest lending requirements, since they are looking for applicants who represent the lowest level of risk, and the highest level of financial stability (hence the better rates and terms).

Technically speaking, A Lenders include federally regulated chartered banks, credit unions that are provincially regulated, and a select few other institutions (like us). A-Lenders have stringent lending guidelines, and generally only lend money to borrowers with good credit and employment history, stable income, and low debt-to-income levels. To be approved for a mortgage from an A Lender, you will typically also need to be able to pass a mortgage stress test. While qualifying for an A Lender or prime mortgage is more difficult, you can also expect to get the best mortgage rates available if you do qualify.

Here are some examples of the most popular A Lenders in Canada. They include a variety of regulated chartered banks and credit unions.

  • CIBC
  • TD
  • Scotiabank
  • National Bank
  • BMO
  • RBC
  • nesto
  • ATB Financial
  • Canadian Western Bank
  • HSBC
  • Vancity
  • Coast Capital Savings Credit Union

B-Lenders

Many Canadians who have a solid credit history and a stable income still find themselves unable to qualify for a loan from an A-Lender. When this is the case, prospective homebuyers may be approved for a mortgage from a B-Lender. B-Lenders are not as strictly regulated as A-Lenders, but they often have more flexibility when it comes to getting approved for a mortgage. They can include different types of lenders, like monoline lenders or home trusts 

Here’s a few examples of some of the better-known B-Lenders in Canada.

  • MCAP
  • First National
  • RFA
  • Merix Financial
  • Radius Financial
  • CMLS
  • Home Trust

Alternative Mortgage Lenders

Conventional mortgages offered by big Canadian banks and other A-Lenders have specific guidelines in order to qualify. Alternative mortgage lenders have different lending criteria than big banks, and could provide a way to get a loan when you don’t meet the requirements for a conventional mortgage. 

Examples of these lenders include private mortgage lenders, some credit unions, monoline and ‘B’ lenders, and smaller banks. Mortgage applicants typically choose alternative lenders if they cannot get approved by a conventional lender, because they have specific requirements for a loan that a conventional lender cannot provide, and because alternative mortgage lenders have more flexible approval criteria. 

Private Mortgage Lenders

A private mortgage lender is an individual or business that lends money privately, setting their own terms and conditions for both the approval process and the mortgage itself. Private lenders come in different forms, and can range from a friend, family member, or to a business or operator that specializes in lending privately. Private mortgage lenders can set their own terms and rates, since they are not regulated in the same way as other banks and financial institutions. 

There can be benefits to working with private lenders, like getting flexibility in the approval process, but they can also charge much higher interest rates, and may have unique terms for their loans, given that they’re not regulated in the same way as other lenders. At the beginning of 2021, private lenders accounted for nearly 8 percent of all mortgages in Canada, a significant figure given the total value of the Canadian mortgage market. 
Examples of some private lenders include:

  • Individual private lenders
  • Prudent Financial
  • Canadalend.com
  • Alpine Credits
  • Clover Mortgage
  • Calvert Home Mortgage
  • Guardian Financing
  • Trillium
  • Sun Mortgage Corporation
  • Threshold Mortgage Corporation

Monoline Lenders

Monoline lenders exist solely to provide lending solutions (hence the name monoline, or ‘one’ line). They are usually not a bank, in that they do not have typical deposit accounts or branches. Monoline lenders specialize in providing money to borrowers. Monoline lenders include both publicly traded corporations, mortgage investment corporations (MICs), and non-publicly traded corporations.

Monoline lenders offer comparable rates to A-Lenders, however, ever lender and solution is different. While there are some lenders in this category who can provide competitive interest rates, it should be noted that rates are not the only factor in choosing your mortgage. Monoline lenders will set their own approval criteria, and it’s worth looking into the terms and conditions of your loan carefully. You can work with some monoline lenders directly, or through a qualified mortgage broker.

Some examples of monoline lenders in Canada include:

  • Atrium MIC
  • Brookstreet MIC
  • CMLS
  • First National
  • Fisgard
  • Magenta
  • Merix Financial
  • Radius Financial
  • Royal Canadian MIC
  • XMC Mortgage Corporation

Credit Unions

One of the main differences between banks and credit unions in Canada is that the latter are member-owned. Credit union members are essentially part-owners of their credit union, and the credit union exists primarily to serve its members. Credit unions are not-for-profit organizations, which means that any profits they do make are either given to members as dividends, reinvested in the union, or invested into local communities. 

In Canada, credit unions are typically regulated by the provincial government, however, in 2012 the Canadian government introduced legislation to allow credit unions to become federally regulated. Vancity, for example, is included in this list of Federal Credit Unions (FCUs). Credit unions are particularly popular in western Canada and Quebec, although they can be found throughout the country.

Credit unions vary in size, however the largest credit unions in Canada (as of the end of 2021 are):

  • Vancity
  • Meridian Credit Union
  • Coast Capital Savings Federal Credit Union
  • Servus Credit Union
  • First West Credit
  • Desjardins Ontario Credit Union
  • Steinbach Credit Union
  • Affinity Credit Union
  • Prospera Credit Union
  • Conexus Credit Union

Small Bank Lenders

All banks in Canada are chartered and regulated under the Bank Act (1991). Smaller banks like Equitable Bank, ICICI Bank, and Canadian Western Bank, are federally regulated, but are smaller in asset size and customer base than the Big Five banks like RBC and TD. While small Canadian banks can often be found countrywide, many have a larger footprint in certain jurisdictions – like Laurentian Bank (Quebec) and Canadian Western (Saskatchewan). 

According to the Office of the Superintendent of Financial Institutions, as of 2014 there were 82 federally regulated banks in Canada, included 35 domestic banks. Here are some examples of the most popular smaller banks in Canada in 2022 who provide mortgage products.

  • B2B Bank
  • Canadian Western
  • Concentra
  • Duo Bank
  • Equitable Bank
  • First Nations Bank of Canada
  • ICICI
  • Laurentian Bank
  • Manulife
  • Tangerine Bank
  • VersaBank

Choosing a Mortgage Lender

Choosing a mortgage lender is a balancing act between finding the right lender for your needs, and being realistic about the kind of mortgage you are likely to get an approval for. A mortgage is a huge investment, and finding the right lender is one of the most important parts of the process. At nesto, we help you compare the best mortgage rates available based on your financial goals and situation, and we also lend directly. 

If you’re looking for a mortgage in Canada, here are the key points you’ll want to consider before choosing a lender:

  • Interest Rates
    • What rate of interest are you able to get approved for? Obviously, you want to aim for a lower rate of interest, since mortgages usually last for many years, and even small differences in percentage can save you thousands of dollars over the lifetime of your loan.
  • Monthly Payments
    • This is one of the most important factors to think about when choosing a lender, besides interest rates. Making sure you can comfortably make your mortgage repayments each month, even if the rates were to increase, is an important part of picking your mortgage. Once you’re locked in, you must make your repayments or risk defaulting on your mortgage. Check out our mortgage repayment calculator to get a sense of how much your mortgage payments could cost you each month.
  • Types of Mortgage Offered
    • What kind of mortgage are you looking for, and does your lender provide this? Conventional mortgages will require a considerable amount of vetting by your lender before you can get approved, however, there are a number of alternative lenders who offer different kinds of mortgage solutions.
  • Terms and Conditions
    • Every lender will have their own terms and conditions for the mortgage you choose. While many of these will be fairly consistent with A-lenders and big banks, smaller banks and alternative lenders will have their own fineprint, and it’s worth making sure you know exactly what the rules of your loan are. For example, what happens if you miss a payment? Is there any flexibility in your mortgage to combine other debts for consolidation later on? What will happen if you want to refinance your mortgage or take out a second mortgage? Discuss these questions with your lender or broker, or speak to a nesto professional today.
  • Prepayment Penalties
    • Prepayment penalties are the costs associated with paying your mortgage off early, or breaking your mortgage before it has finished its term. These can be surprisingly costly, so it’s important to discuss with your lender what their policy is on paying early or breaking your mortgage term before it matures. 

Frequently Asked Questions

Here are some of the most common questions Canadians are asking in 2022 about choosing a mortgage lender.

Which score do mortgage lenders use in Canada?

Generally, mortgage approval decisions in Canada are based on FICO scores, however, a small percentage of lenders will use VantageScore. The two most popular bureaus used to report credit scores in Canada are Equifax and TransUnion. Although it varies by lender, a credit score of around 700 or more is considered a good starting point for mortgage lenders.

Who is the biggest mortgage lender in Canada?

The Royal Bank of Canada (RBC) is the largest lender in the country and makes up nearly 30% of Canada’s mortgage market as of 2020, with a total residential mortgage lending amount of over 310 billion CAD.

What type of lender is nesto?

Nesto is a digital mortgage finance company. We help Canadians compare the best mortgage rates available, online, from lenders all over the country. In addition, we also lend directly, and provide commensurate rates with other A-Lenders in Canada.

Final Thoughts

Ultimately, there are a range of different mortgage lenders in Canada, with opportunities for all kinds of financial situations and requirements. Whether you’re looking to get a mortgage approval from a big bank, another A-Lender, or you want to look into alternative types of mortgages, it’s important to know exactly what you can get approved for and what kind of mortgage will suit your needs best. 

Finding the right lender is a big step in the journey to homeownership. At nesto, we help thousands of Canadians find the right mortgage. Our trained mortgage advisors aren’t incentivized by commission, our only goal is to help you find the right mortgage for you. To learn more, get in touch with our team today.


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