The bulk of Canada’s 400+ prime mortgage lenders are smaller institutions. (That number includes credit unions.)
At any given time, one of these lenders—perhaps one you’ve never heard of—could offer the best mortgage deal. That’s especially probable today with major banks avoiding publicized rate competition.
The question is, should concern that a lesser-known mortgage company may fail deter you from dealing with that lender?
That topic is probed in this week’s Globe column, and from the story title, “Don’t fear the small mortgage lender,” you can likely infer the answer.
Rob McLister, CMT
There is one big reason that I know of to shun small lenders. Unlike big F.I.’s, they are less likely to still be around at renewal and if you need to requalify elsewhere but are temporarily unemployed, on extended leave/maternity or your income is unstable, you might have a big problem renewing and suddenly be forced into a alternative B lender or worse and have to sell your house. Quite the risk to just save a few basis points!
generally i think if you are taking out debt you shouldn’t be too worried about where it comes from as long as the terms of the loan contract are solid. after all you are borrowing money not investing it so it’s not your money that is at risk.
Define “less likely.”
Let’s be realistic. The chances of a mortgage holder having employment problems at renewal AND having his or her lender close are probably 1 in 1,000.
Secondly, if a lender went out of business, its portfolio would be acquired. Part of the purchase value of that portfolio is in the renewals. Whoever bought those mortgages would make the borrowers a renewal offer. I know of no precedent otherwise.
LTB, true, if any lender was acquired or sold off their portfolio (more common to small lenders), you would be 99.9% certain to get a renewal offer but if in a situation named above, you’re at the mercy of the new lender and what they offer.
As always good and thought provoking article Rob. In reading that G&M piece there wasn’t enough distinction between what was a broker and what was a lender. d.
Under the new rules it really doesn’t matter who you are with at renewal time, if you have missed a payment or have any other issues with your payment, employment etc. you would likely have to be fully underwritten again rather than just have access to an easy refi/roll.
If you employment circumstances have changed around a renewal time you will always be at the mercy of a renewing lender. Most Big Banks send out non-fully discounted rates at renewal times. Those borrowers in questionable circumstances have no choice but to renew and the Big Banks know that.
Thanks for the post Grazor.
The Globe story was really intended to focus on one question: the risk (to a qualified borrower) of a lender being acquired or going under. As you note, however, if you don’t pay as agreed then you can’t expect a renewal offer regardless of the lender.
With respect to employment, “A”-lenders typically make renewal offers without re-checking employment (as long as you’ve never been in default.)
Cheers….Rob