What Is an Alternative Mortgage Lender?

Jun 9, 2025

Alternative lenders specialize in helping borrowers who can't get mortgages at federally-regulated banks.

Written by Clay Jarvis

Lead Writer & Spokesperson

Written by Kurt Woock

Lead Writer & Content Strategist

Written by Clay Jarvis

Lead Writer & Spokesperson

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An alternative mortgage lender is a home loan provider that isn’t regulated to the same extent Canada's major banks are. That allows their lending criteria to be less strict.

For borrowers, this means that if you can’t get a mortgage through a bank, there are other options you can pursue.

In need of an alternative mortgage solution?

Our detailed list of the best bad credit lenders in Canada features several of the country's most respected alternative lenders.

Examples of alternative lenders in Canada

"Alternative lender” is a broad term, and can mean different things.

Generally speaking, alternative lenders are not federally-regulated financial institutions, so they have freedom to create their own lending criteria. In Canada, alternative lenders include:

An alternative to what?

The common thread among the lenders above is what each one is not: a big bank. Canada’s big six banks are behind three out of four mortgages.

Banks are regulated by the federal government. Alternative lenders are often regulated by provinces, which might have less stringent regulations. That's why alternative lenders often have more flexibility with their eligibility requirements.

Banks and other financial institutions regulated at the federal level must ensure applicants receive a mortgage stress test; alternative lenders don't. And if you’re borrowing from a bank, your credit score must meet government-mandated minimums that alternative lenders aren’t subject to.

Who should use an alternative lender?

Low credit scores or limited credit history are common reasons borrowers turn to alternative lenders. But you might also benefit from using one if:

You’re looking at an unusual property or location. It may be harder to find a mortgage with a traditional lender in a rural location or if a home needs major renovations.
You’re in a hurry. If a buyer wants to close as quickly as possible an alternative lender may be able to move paperwork through quickly.
You have an unusual income pattern. Freelancers or business owners may not have straightforward salaries or income documentation.
You want a very short term loan. Perhaps there’s a gap of a few months between buying a new home and selling a current one.
You need a niche type of mortgage. Reverse mortgages are one example.

Downsides to using alternative mortgage lenders

Higher costs are the most obvious knock against alternative lenders, including:

Higher mortgage rates. Alternative lenders mitigate the increased risk they face by charging more in interest.
Higher down payment requirements. Borrowing from an alternative lender often requires making a down payment of at least 20%.

The Financial Services Regulatory Authority of Ontario says borrowers should be aware of any fees or penalties they might pay before working with an alternative lender. These costs might be more severe than those found with bank mortgages. FSRA suggests asking questions like:

What would happen if you miss a payment? How quickly could you lose your house if you fell behind on payments?
What are all the costs and fees you can expect to pay at closing, during the loan and at renewal?
Are any fees ever due before you close?

Alternative lenders aren't known for behaving unethically, but a lack of federally-enforced monitoring means you may need to be your own advocate.

How to find an alternative lender in Canada

The most effective way to find an alternative lender is to work with a mortgage broker.

Many alternative lenders work exclusively with mortgage brokers, so you may not be able to apply for a mortgage with one without the assistance of a broker.

If a broker introduces you to an alternative lender, read online reviews and ask your broker about the lender's repayment terms, prepayment privileges, fees and reputation.