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April 4, 2016

What is a Monoline Lender?

If you ever wondered which bank is offering the rates we advertise, you are not alone as we get asked this quite often.  The simple answer to this question is “it’s with a non-bank lender; a monoline lender.”  This is when it could get confusing and worrisome but that’s where we come in to provide our expertise.

As one of the largest independent mortgage brokerages in Canada, we partner with “Tier A” lenders which include major banks and monoline lenders.  The lowest rates we advertise are almost always offered by monoline lenders.  This is because they have a simple business model that focus on just mortgages.

You will wonder what the risks are with going with a monoline lender and if you think about it, there really isn’t one as they are in the business of giving money, not taking it.  They are holding onto all the risk.  In fact, many monoline lenders get their funding from large financial institutions and that funding is fairly stable.  If a lender were to terminate their business operations, another financial institution would take over the mortgage.  For example, this happened twice in the last 4 years when Scotiabank acquired Tangerine (formally known as ING Direct) and when FirstLine Mortgages, previously the largest monoline lender, shut down their operations and began transferring their mortgages over to CIBC (currently still in progress).  All of those mortgages stayed as-is and there was virtually no impact to the borrower.

Everyone wants the best rate possible and if you’re looking to save money, you have to be open to giving your business to a smaller lender.  Keep in mind that monoline lenders are regulated by the government just like the major banks so they must follow the same lending guidelines.

Every client has a unique situation and requires different mortgage needs and it is our duty to assess each circumstance thoroughly to determine which lender best suits them.  Quite often, we will recommend a monoline lender.

Here are some advantages of monoline lenders:

  • They focus on one line of business: mortgages.  This means they will not cross-sell you on products like chequing accounts, savings accounts, insurance, investments, credit cards, etc.
  • No storefronts which means overhead costs are kept at a minimum which allows them to pass on the savings to clients in the form of lower interest rates
  • The mortgage industry is heavily regulated by the government which protects the client as they are required to follow the same lending guidelines as the major banks
  • Mortgages are registered on title as a “standard charge” and not “collateral charge” which means you can transfer the mortgage to another lender at the end of the term without incurring legal fees (providing there isn’t a 2nd mortgage and/or secured line of credit on title)
  • Some monoline lenders can be flexible with circumstances such as offering mortgages for property investors, people with damaged credit, and self-employed individuals
  • Some can close a deal quicker than the major banks – this is crucial for deals with an urgent closing date and needs priority attention
  • Rates are often much lower than the major banks which typically result in a lower penalty should the mortgage be discharged prior to the end of the term
  • Pre-payment options are typically greater than the banks
  • They also offer online access to your mortgage as well as customer service departments to take on telephone inquiries

For more information, please feel free to contact us and one of our mortgage agents will gladly assist you!

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