When it comes to “A” level mortgage financing, there are two main types of lenders: monoline lenders and the big banks. There are also others like private lenders and credit unions but we won’t focus on those here as they vary between provinces.
What Is A Monoline Lender?
A monoline lender is considered a broker only lender. This means that they are only accessible through a mortgage broker. They differ from the big banks in Canada because they only do one line of business, mortgages.
These lenders are highly regulated financial institutions in Canada and are required to have licenses from regulatory bodies like the FSRA.
Monoline Lenders Vs. Big Banks
Monoline lenders do not take deposits like a traditional bank, and because of this they do not have branches on every street corner. While they are regulated financial institutions, the brand names are not as familiar to Canadians as the big banks. However monoline lenders are some of the largest mortgage holders in Canada!
Collectively monoline institutions hold hundreds of billions of dollars in the Canadian mortgage market.
Examples Of Canadian Monoline Lenders
Most Canadians can name off the big banks fairly easily, but monolines are not as familiar. Some of the most popular ones are First National, MCAP, Merix and RFA to name a few.
Why Should Someone Use A MonoLine Lender?
One of the biggest benefits of using a monoline lender is that they are solely focused on mortgage loans. This allows them to reduce operating costs because they don’t have a high number of fixed locations with tons of salaried employees to pay. This allows these lenders to pass on savings to their mortgage customers, which is why these lenders will typically offer better rates, pre-payment privileges and reduced penalties compared to traditional banks.
The Biggest Difference Between Monoline VS Big Banks
The biggest difference is the reduction in penalties for fixed-rate mortgages due to the difference in how the interest rate differential is calculated. This penalty can be the difference between roughly 0.5% of the mortgage balance with a monoline lender to as high as around 4% with a bank.
Are they safe to use?
Yes, these lenders are very secure and collectively hold a substantial share of the mortgage market in Canada. Monoline lenders are highly regulated and need to adhere to policies similar to those set out for the big 5 banks. Some monoline lenders are actually banks themselves and fall under the same Schedule I banks as the big 5 banks.
Should you choose a monoline lender?
It’s hard to know without looking at the full picture, as sometimes a bank may be the better option. The most financially responsible thing to do is to contact your mortgage broker so they can review the options with you and see what the best fit is for your situation and goals.