In Alberta there are three main places a mortgage can come from: a bank or credit union, an alternative lender (often called a “B lender”), or a private lender. Each one approves different people, costs a different amount and moves at a different speed. Knowing the difference helps you avoid paying private-lender prices when a cheaper option would have said yes.
Banks and credit unions (A lenders)
Banks and most large lenders offer the lowest rates, but they have the strictest rules. They look closely at:
- Your credit score and history
- Your provable income, usually from T4 slips, pay stubs or two years of tax returns
- Your debt ratios: how much of your income goes to housing and other debt
- Whether you pass the mortgage stress test, which checks you could afford payments at a higher rate
If you fit, a bank is almost always the cheapest choice. Credit unions in Alberta are provincially regulated and sometimes have a little more flexibility than the big banks, but they still lend mainly on credit and income.
Alternative lenders (B lenders)
Alternative lenders sit in the middle. They include trust companies and other lenders that serve borrowers who are close to bank-ready but don’t quite fit, such as:
- People with bruised but recovering credit
- Self-employed borrowers who can’t show enough income on their tax returns
- People who recently finished a consumer proposal or bankruptcy
Rates are higher than a bank’s, and there’s often a lender fee, but they’re usually well below private rates. Terms are often one to three years, with regular payments that pay down the balance.
Private lenders
Private lenders (mortgage investment corporations, investor groups and individuals) focus mainly on the property’s equity and your exit plan. They can approve situations the other two can’t, for example:
- Serious credit problems or very recent missed payments
- Being in the middle of a consumer proposal
- Mortgage or property tax arrears
- Needing to close in days, not weeks
- Unusual properties
The trade-off is cost: the highest rates of the three, plus lender and broker fees, short terms, and often interest-only payments.
Side by side
- Who they approve: banks approve strong credit and income; alternative lenders approve the “almost there”; private lenders approve based mainly on equity.
- Cost: banks are lowest, alternative lenders are in the middle, private lenders are highest.
- Fees: banks rarely charge them; alternative lenders often charge a lender fee; private lenders charge a lender fee and usually a broker fee.
- Term: banks commonly offer five years; alternative lenders one to three; private lenders usually months to two years.
- Payments: banks and alternative lenders pay down the balance; private lenders are often interest-only.
- Speed: private lenders are usually the fastest.
How to choose
The right order to look is usually bank first, then alternative, then private. Private makes sense when the other two have said no, or can’t move fast enough, and you have a clear plan to step back down to a cheaper lender later.
Many people use more than one over time: a private mortgage for a year while credit recovers, then an alternative lender, then back to a bank. Each step lowers the cost.
Why a broker helps
A mortgage broker can see all three kinds of lenders at once. Instead of applying at your bank, getting declined, and starting over somewhere else, a broker can tell you up front which kind of lender is realistic for you and compare offers side by side.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.