How to Choose the Right Mortgage Lender

When applying for a mortgage, it’s reasonable to be laser-focused on the interest rate you’re offered. An important secondary concern is which mortgage lender you work with.

You’ll want a lender that handles your mortgage with precision and professionalism while keeping your interests as a borrower front of mind. Choosing from among Canada’s many lenders shouldn’t be that difficult if you know how to compare them.

What to look for when choosing a mortgage lender on your own

Choosing a mortgage lender on your own requires some work, mostly research. Depending on how many lenders you want to compare, this could be time consuming. But since your mortgage is a major commitment, you want to be confident in your choice of lender.

Here are a few things to look for when comparing mortgage lenders:

Online resources

Don’t hesitate to use online resources like reviews and Reddit threads to dig a little deeper into other people’s experiences with the lenders you’re considering.

When consulting online reviews, be sure to go beyond the star rating and read what borrowers have to say. A lender that receives positive reviews from mortgage brokers but negative reviews from homeowners may not be the one for you.

Using a mortgage broker to choose a lender

Choosing a mortgage lender generally becomes faster and easier when you use a mortgage broker. A broker does all the comparison work for you, including sniffing out the best rates and products for your financial situation.

When a broker presents you with mortgage options, that’s your opportunity to ask all the questions you want about the lenders involved. Because you’ll be asking an independent expert and not a lender employee, the answers you receive from a broker might be more objective.

Just because you consult a mortgage broker, or even get pre-approved by one, you’re under no obligation to complete the mortgage process with them. You can use the information you glean from a broker to negotiate directly with a lender.

Keep in mind that brokers might be able to negotiate lower rates because of the relationships they have with certain lenders. Many lenders only work with brokers and don’t allow individuals to apply directly for a mortgage.

Types of mortgage lenders

A lenders

Canada’s A lenders include the Big Six banks such as RBC, BMO and Scotiabank, and numerous credit unions. An A lender will often work directly with borrowers, although many work with brokers, too.

To be approved by an A lender, you must have a good credit score and manageable debt service ratios. Additionally, federal regulations mean you will have to undergo a mortgage stress test to qualify for a home loan with an A lender. (Even though most credit unions are provincially regulated, they still tend to follow the stress test guidelines.)

Using an A lender comes with many advantages. The main one being that creditworthy borrowers qualify for the best current mortgage rates. A lenders have the tightest qualifying criteria, so qualifying can be a challenge.

» MORE: How to negotiate your mortgage

B lenders

B lenders, also referred to as alternative lenders, offer mortgage options for borrowers who can’t meet the strict qualifications of A lenders. Many B lenders only work with mortgage brokers.

B lenders include a number of smaller Canadian banks and mortgage investment corporations, including Canadian Western Trust, Home Equity Bank and Home Trust.

The advantage of using a B lender is that the criteria to qualify aren’t nearly as strict as with A lenders. B lenders are more willing to give mortgages to individuals with a poor credit history or those without a guaranteed income, like new Canadians or self-employed individuals. Since B lenders take on an added risk, borrowers end up paying a higher interest rate.

» MORE: Are you ready to buy, or should you rent?

Private lenders

If you get turned away from a bank, credit union or B lender, there is still the option of getting a short-term private mortgage.

For certain borrowers, getting a mortgage from a private lender can be quicker and easier than going the more traditional route, but the rates and risk involved can be much higher.

For example, a private lender’s qualifying criteria relies less on a person’s credit score and more on how much equity they have in the home they’re paying off. That low barrier to entry can result in people taking on second or third mortgages they can’t afford.

Private lenders range in size from individuals to large mortgage investment corporations, so choosing the right one requires the services of an experienced mortgage broker.