Essential Knowledge Series
A, B, C?
What does it all mean? Obtaining a mortgage is confusing enough to have to know which mortgage lender is right for you.
If you're confused already, you're not the only one. You may have heard of A and B lenders, but what are they exactly?
A Lenders
An A lender is an institution that is generally quite large, with very good rates available to consumers. Some of the most obvious A lenders are the major banks in Canada such as Scotiabank and TD. Aside from the banks, however, there are multiple other A lenders that only work in the lending industry, and aren't financial institutions that operate in the same way as a bank.
Credit Score:
With A lenders, you can expect the best rates, and generally don't have a limit on residential lending. There's a catch though. Those looking at a loan through an A lender will need to have a credit score in the 640 range and above.
Income:
A lenders are looking for the most secure, consistent household income. On top of that, they want to generally see a history of the income. Without stating the obvious, this isn't always the easiest thing to prove when you've just left a job or career path. While they offer low rates, A lenders are very risk-averse and are only willing to offer those low rates to candidates that fit their criteria.
You might be thinking to yourself, "Darn, that recently closed-out credit card really brought my credit score down", or "I'm not sure if our household income will be able to help us in this market". That's where B lenders come into play.
B Lenders
B lenders are where you go when you are in a pinch for financing because of credit and/ or income issues. However, in recent years, B-side rates have become very competitive. Here's what to expect when you look to a B lender for approval.
Credit score:
There is no specific credit score minimum in place. These lenders will work with the borrower and identify why they have a bad credit score and see if there is a reasonable explanation. Of course, there are exceptions such as a very recent bankruptcy, but generally, you can work things out.
This is why we talk about maintaining a good credit score. Even with B lenders, you will get a higher interest rate the lower your score. You may not be able to maintain that 600 range, but at the very least try to keep your score as high as possible.
Income:
Everyone knows when you look for a mortgage, the lender's main concern is whether or not you will be able to pay the loan back. In doing so, the lenders work out specific ratios that limit you from being able to borrow from them. When it comes to B lenders, these ratios are drastically more lenient. This gives people the advantage of getting into the market when their incomes are lower and/or not as consistent.
Another benefit a B lender offers is the ability for self-employed individuals to utilize more of their income. This is a huge bonus compared to the A lenders and is why a lot of self-employed individuals use B lenders instead.
In summary, I've created a chart for you to visualize the differences.
| A Lender | B Lender |
Income requirements | Need a consistent, reliable gross income | Need a consistent, reliable gross income, but lenders willing to stretch ratios for approval |
Credit Score | 640 and above | 300-900 |
Default Insured Purchases | Yes | Yes (rare because of credit score minimum on default insured purchases) |
Self Employed Individuals | Yes | Yes |
Interest Rates | Lowest rates on the market | Typically add 0.5%-2% premium (depending on credit score) |
Mortgage Terms | Fixed (1-5 year, 7, 10) Variable (3, 5 year). Open and closed options. | Fixed (1-3 year). Closed andr open options. |
At the end of the day, everyone is looking to obtain the lowest interest rates and best mortgage terms. With A lending you can do that. But, it is a huge bonus to Canadians to be able to have the flexibility to still be able to borrow on the B side, even at a premium.
There's an old saying, "Getting 50% of something is better than 100% of nothing".
Think an A or B solution is what you've been looking for? Give us a call or send us an email and we'll work with one of our 50 lending partners to find you the perfect solution!
Questions/Comments?
Give us a shout in the comment section or find our contact details on the main page of our website at www.triedandtruemortgages.ca
Comments