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Monoline Lenders; Are They Right for You?

Often referred to as non-bank lenders, monoline lenders deal exclusively with mortgage brokers and aren’t often seen marketing themselves to consumers; this may explain why you’ve probably never heard of them.

Offering no other services or types of credit, monoline lenders deal only in mortgages and operate solely online or by phone, with no physical branches. But how do you know if they’re right for you?

What makes monoline lenders so appealing?

With low overheads and business models that are ultra-efficient, lower rates are typically offered by monoline lenders in comparison to the big banks, making them popular with brokers and consumers alike. When it comes to fixed-rate mortgages, these lenders also have a different penalty structure, calculating exit penalties in a different way to that of the big banks. This means that if you break your mortgage, the repercussions could amount to a lot less in dollars than that of a mortgage with a bank, thousands of dollars, in fact.

While you may not ever plan to break your mortgage, you never know what life might throw your way, and research shows that around 70% of borrowers need to change their five-year fixed-rate mortgage before maturity due to a fall in rates, a move to another property or because their financial circumstances have changed.

Why haven’t you heard of them?

Marketing themselves exclusively to brokers, while you may have heard of First National (Canada’s largest monoline), the chances are that you’ve never heard of the smaller lenders. However, this doesn’t reflect their repute or legitimacy, and many of them are strictly regulated – just like the big banks – and have been operating successfully for many years now.

How secure are monoline lenders?

With strict regulations in place for all monoline lenders, they must adhere to the same lending guidelines as all the other major lending institutions. They all secure their mortgages with insurance from one of Canada’s three mortgage insurers and are not out to give loans to borrowers who are high-risk. Should a monoline lender cease operating, the impact on borrowers would be minimal, as another lender could simply take over the purchased company’s insured mortgages.

Is a monoline lender right for me?

If you want to find the best mortgage to suit your specific financial and personal circumstances, then a lesser-known lender could be the perfect fit for you. Talking with an independent mortgage broker can help you filter out those lenders with products and terms that don’t work in your favor long-term, and help you to better understand the fine print on penalty calculations, portability, refinance limitations, and more.

To find out more detailed information about monoline lenders, schedule a consultation with a local, experienced mortgage broker.

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