How to Choose the Right Mortgage Lender

When applying for a mortgage, it’s totally reasonable to be laser-focused on the interest rate you’re offered. An important secondary concern is which mortgage loan lender you work with.

You’ll want a lender that handles your mortgage with precision and professionalism while keeping your interests as a borrower front of mind. Choosing from among Canada’s many lenders shouldn’t be that difficult if you know how to compare them.

What to look for when choosing a mortgage lender on your own

Choosing a mortgage lender on your own requires some work, mostly research. Depending on how many lenders you want to compare, this could be time consuming. But since your mortgage is a major commitment, you want to be confident in your choice of lender.

Here are a few things you should look for when comparing mortgage lenders:

Which lender offers the best mortgage rates?
Who has the most forgiving procedures in place in case you miss a mortgage payment?
How helpful are the prepayment privileges? How strict are the prepayment penalties?
What is the cost to get out of your mortgage, if needed?
Who answers your questions the quickest and most thoroughly?
Did a lender act impatiently or make you feel pressured at any point?

» MORE: How does mortgage interest work?

Online resources

Don’t hesitate to use online resources like reviews and Reddit threads to dig a little deeper into other people’s experiences with the lenders you’re considering.

When consulting online reviews, be sure to go beyond the star rating and read what borrowers have to say. A lender that receives positive reviews from mortgage brokers but negative reviews from homeowners may not be the one for you.

Key takeaway: When speaking to lenders about their products and services, keep asking questions until you’ve received all the answers you need. Don’t worry about sounding naive. Finding out how a lender handles inquiries is one way to gauge the level of customer service you might receive.

Using a mortgage broker to choose a lender

Choosing a mortgage lender generally becomes faster and easier when you use a mortgage broker. A broker does all the comparison work for you, including sniffing out the best rates and products for your financial situation.

When a broker presents you with mortgage options, that’s your opportunity to ask all the questions you want about the lenders involved. Because you’ll be asking an independent expert and not a lender employee, the answers you receive from a broker might be more objective.

Just because you consult a mortgage broker, or even get pre-approved by one, you’re under no obligation to complete the mortgage process with them. You can use the information you glean from a broker to negotiate directly with a lender.

Keep in mind that brokers might be able to negotiate lower rates because of the relationships they have with certain lenders. Many lenders only work with brokers and don’t allow individuals to apply directly for a mortgage.

Best Mortgage Rates in Canada

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Types of mortgage lenders

A-lenders

Canada’s A-lenders include the Big Six banks such as RBC, BMO and Scotiabank, and numerous credit unions. An A-lender will often work directly with borrowers, although many work with brokers, too.

To be approved by an A-lender, you must have a strong credit score and manageable debt service ratios.

Additionally, federal regulations mean you will have to undergo a mortgage stress test to qualify for a home loan with an A-lender. (Even though most credit unions are provincially regulated, they still tend to follow the stress test guidelines.) Using an A-lender comes with many advantages. The main one being that creditworthy borrowers qualify for the best current mortgage rates. A-lenders have the tightest qualifying criteria, so qualifying can be a challenge.

» MORE: How to negotiate your mortgage

B-lenders

B-lenders, also referred to as alternative lenders, offer mortgage options for borrowers who can’t meet the strict qualifications of A-lenders. Many B-lenders only work with mortgage brokers.

Mortgage B-lenders include a number of smaller Canadian banks and mortgage investment corporations, including Canadian Western Trust, Home Equity Bank and Home Trust.

The advantage of using a B-lender is that the criteria to qualify aren’t nearly as strict as with A-lenders. B-lenders are more willing to give mortgages to individuals with a poor credit history or those without a guaranteed income, like new Canadians or self-employed individuals. Since B-lenders take on an added risk, borrowers end up paying a higher interest rate.

» MORE: Are you ready to buy, or should you rent?

Private lenders

If you get turned away from a bank, credit union or B-lender, there is still the option of getting a short-term private mortgage.

For certain borrowers, getting a mortgage from a private lender can be quicker and easier than going the more traditional route, but the rates and risk involved can be much higher.

For example, a private lender’s qualifying criteria relies less on a person’s credit score and more on how much equity they have in the home they’re paying off. That low barrier to entry can result in people taking on second or third mortgages they can’t afford.

Private lenders range in size from individuals to large mortgage investment corporations, so choosing the right one requires the services of an experienced mortgage broker.

A mortgage lender is any financial institution that provides financing to purchase real estate. In Canada, mortgage lenders include large chartered banks, credit unions, alternative lenders and private lenders.

Yes, you can change mortgage lenders if you refinance, renew or break your mortgage. Changing lenders at renewal is generally the least risky option, since refinancing or breaking your mortgage mid-term to work with a different lender might trigger steep mortgage prepayment penalties.