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| Subprime mortgage | Bank mortgage | Home equity loan | |
|---|---|---|---|
| Rate range | 4.04 - 16% APR | 4 - 17.99% APR | |
| Interest charged on | The full amount, amortized | The full amount, amortized | The full amount from day one |
| Repayment | Fixed payments, often shorter terms | Fixed or variable payments over the amortization | Fixed instalments, registered against the home |
| Re-borrow without reapplying | No | No | No |
| Best when | Credit or income documentation blocks a bank approval | You qualify on income and credit at a bank or monoline | A large cost and meaningful equity in your home |
| Watch out for | Higher rates and lender fees than prime | Qualification is strictest here | Setup and legal costs; your home secures the debt |
The word covers two very different things in Canadian mortgage lending, and conflating them costs borrowers money.
B lenders are institutional: trust companies, credit unions, monoline lenders. They verify income, amortise normally, and price moderately above banks. Most people declined by a bank belong here.
Private lenders are equity-driven, short-term and considerably more expensive.
Many borrowers pushed toward private lending qualify at B tier. Establishing which tier fits before applying is worth more than any rate comparison within a tier.
Income shape rather than income size. Self-employed, commission, contract, rental and recently changed employment all read poorly to a federally regulated lender and fine to a B lender.
Credit below bank thresholds but not catastrophic. Recent late payments, a past consumer proposal now discharged, a thin file.
Debt service ratios slightly over. B lenders apply more flexible thresholds.
Property type. Rural, unusual, mixed-use or small square footage can fail bank policy on the property alone.
Rates run above bank rates and lender fees frequently apply. On a large mortgage, that difference across a term is real money.
The comparison worth making is not B tier against a bank rate you cannot get. It is B tier against renting, or against waiting a year to become bankable. Sometimes waiting wins, and a lender who tells you that is worth more than one who does not.
Most B mortgages are two or three year terms, and the purpose of that term is to become bankable.
A mortgage from a lender outside federal regulation with more flexible criteria, at a rate above bank pricing.
No. B lenders are institutional, verify income and amortise normally. Private lenders are equity-driven and short-term. The cost difference is substantial.
Typically one term, two to three years, with clean history throughout.
Frequently, and the fee is separate from the rate. Ask for the total cost of the deal.
