One of the major benefits of working with a mortgage broker in Ottawa is that they have access to many lenders from banks, to credit unions to monoline lenders.
For clients only familiar with traditional banks, many of the lenders available with Ottawa mortgage brokers may be new to you. These lenders, although new to you are household, everyday names to your mortgage broker.
Learn more: Ottawa Mortgage Brokers
A smaller lender does not mean you should fear them or that they are not a strong lender. Many monoline lenders are quite large with with tens of billions of dollars in assets under administration, hundreds of employees and multiple offices across the country. Some even have branches you can visit.
Lenders, are like hotels. There are major brands of hotels that you are most likely familiar such as Best Western and Marriott. However sometimes for the most catered experience a boutique hotel is the best option. For example, the The Magnolia Hotel & Spa in Victoria took the number one spot for Travel and Leisure’s best hotels in Canada for 2017 although perhaps many have not heard of this hotel company.
Big banks spend big dollars on branches, staffing and advertisement. Sadly however these big dollars come out of your pocket in the way of fees and higher interest rates. Big banks make big profits on this. I would rather see more of that money in your pocket than in theirs, in terms of interest rate savings for you.
Also, some banks only offer collateral mortgages.
Learn more: Collateral Mortgage
For your everyday banking or your credit card, having a traditional bank may be the way to go. There is convenience from the one company with ATM machine access, unlimited withdrawals, travel points, and so on. As a mortgage is more for utility and serviced less frequently, for example, every 5 years, having a luxury brand bank, may not be necessary and can be costly. If you need a simple tee shirt to mow the lawn you may be better off in Hanes then Hugo Boss.
Smaller lenders are governed by the same regulator as banks and follow the same guidelines.
When asked if they are risky, think that you have their money, they don’t have yours. Lenders are the ones taking the risk on you. For example, if you were to lend a stranger $100,000, would you or the stranger be taking the risk? If a smaller lender was ever to be bought or no longer offer mortgages, your mortgage contract, terms and rate will still stay in effect until it's maturity. This could be seen when Scotiabank bought ING, now called Tangerine, for example.
Each person is unique and having a mortgage with a big bank or smaller lender is a personal preference. Both can have pros and cons. I am here to go over all the pros and cons with you and help you make the best, educated decision for your needs.
Learn more: Monoline Lenders on YouTube
Everyone is familiar with a bank and a credit union however many are not familiar with a monoline lender.
What is a monoline lender and why are they an option to explore when looking for a mortgage?
Mono, meaning one, means that a monoline lender has one line of product to offer, that being mortgages. Banks and credit unions however offer a variety of financial services.
By offering one type of product, this of course does not mean that monoline lenders are any less of a company or more risky. It just means they specialize in one product. Just like Lamborghini is not any less of a vehicle in comparison to Honda or Toyota. They just specialize in one type of vehicle, and do it quite well.
If you do not like being solicited to, fortunately a monoline will not try to cross sell you on their other products. For example, RSPs, credit cards, overdraft protection and so on, as they do not offer these.
Monolines in Canada are very reputable and have been around for decades. A monoline lender sources their money from Canada’s major banks and lend it out at lower rates. With monoline lenders being able to focus solely on mortgages, they have been known to have more options on their mortgages. Plus, more streamlined online service. Plus they typically have lower rates due to having less overhead then banks and credit unions.
All monolines secure their mortgages with back-end mortgage insurance from one of Canada’s three mortgage insurers such as CMHC.
One major difference between a bank and a monoline lender is the penalty structure if ever needing to break your mortgage. With monoline lenders, the penalty to break the mortgage is much lower. This is because banks and monoline lenders calculate their IRD (Interest Rate Differential) differently. Banks use a posted rate which is quite high when calculating the IRD. Monolines use what is called an unpublished rate or discounted rate. Typically, both a bank and monoline lender will allow you to port your mortgage.
Many banks will allow you the prepayment option to pay of 10% to 15% of your mortgage per year without a penalty. Monoline lenders typically will allow 20%.
Learn more: Prepayment, Porting and Assumable
As mortgage brokers have access to banks, credit unions, monoline lenders and more they will be able to review all these different options for you.