There are several lenders available to you when you are looking to finance your home. Many of you think your bank is the only option. You do have an option and one such option is a monoline lender. The definition of mono is alone, single or one and a monoline lender simply provides single yet refined mortgage financing. They play an important role in the mortgage market as their mortgage products and low pricing improve consumer choice and force the banks to be more competitive. A monoline mortgage is only available through the services of a mortgage broker and their main goal is mortgage financing. They will not cross sell you on chequing/savings accounts, RRSP’s, TFSA, credit cards, purchasing insurance or any other manner of business banks and credit unions deal with.
Monoline lenders are very reputable and many have been around for a very long time. Canada’s second largest mortgage lender through the broker channel is in fact a monoline lender. Many of the monoline lenders source their funds from the big banks in Canada as these banks look to diversify their portfolios and seek to make money for their shareholders through safe alternative channels such as a monoline lender. They are sometimes referred to as security-backed investments as all monoline lenders secure their mortgages with what is referred to as back-end mortgage insurance provided by CMHC, Genworth or Canada Guaranty, the three insurers in Canada. They strictly adhere to the policies of the insurers.
A monoline lender does not operate a storefront thus savings costs that are passed on to you the borrower. They typically offer lower rates and the major difference between a bank and a monoline lender is the exit penalty structure for fixed rate mortgages. A monoline lender will have a much lower penalty should you break your mortgage before the term is up. In Canada six out of every 10 households break their existing five year term at 38 months so while we sign on for a five year fixed rate mortgage with good intentions, situations and circumstances change.
The difference in a penalty on an average $300,000 mortgage can easily be upwards of $10,000. The banks calculate Interest Rate Differential using their posted rates while a monoline uses an unpublished rate and often the difference between the posted rate and unpublished rate used to calculate the IRD is over 1.5 per cent. Based on a $300,000 mortgage as an example the difference can result in a $14,000 penalty with a bank vs. a $3,000 or less penalty with a monoline lender. Another notable difference between the two is a monoline lender will not register a collateral charge on your property meaning you are able to transfer your mortgage at renewal to a lender of your choice.
Monoline lenders offer many appealing alternatives that should be considered when you are in the market for a mortgage. Banks and Credit Unions do as well. Mortgage requirements and qualification are unique to each of us. At the very least you owe it to yourself to explore and fully understand the options available to you to make an informed choice.
Of Prime Interest is a collaboration of mortgage professionals Trish Balaberde 250.470.8324 trishb@creativemortgage.ca; Darwyn Sloat 250.718.4117 dsloat@creativemortgage.ca; Christine Hawkins 250.826.2001 christine@creativemortgage.ca
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