Who this is for
- Borrowers declined by a bank for credit, debt ratios or income type
- Self-employed people with low taxable income or under two years in business
- Homeowners recovering from a consumer proposal, bankruptcy or missed payments
- Buyers and homeowners in Toronto, GTA, KWC, Guelph, Hamilton who need a flexible lender
What is an alternative (B) lender?
Alternative lenders sit between the big banks (A-lenders) and private lenders. They are usually trust companies, some credit unions and specialised mortgage lenders. Many are federally or provincially regulated, and they lend their own or investor funds under more flexible guidelines than the banks.
In Ontario, you cannot apply to most alternative lenders directly; they work through licensed mortgage brokers. That is why a broker relationship matters when the bank says no.
How alternative lenders differ from banks
Banks follow strict debt-ratio limits and credit-score cut-offs. Alternative lenders can allow higher debt ratios, look past recent credit issues and use stated or bank-statement income for self-employed borrowers. They still require you to pass the federal stress test on uninsured mortgages and usually want at least 20% down or equity.
Rates are typically higher than bank rates, and a lender fee and/or broker fee may apply. Terms are usually one to three years.
Alternative vs private lenders
Private lenders are individuals or mortgage investment corporations. They decide faster and can go further, but cost more and usually lend for one year, often interest-only. An alternative lender is normally the cheaper and more stable choice when you qualify, and private lending is used when an alternative lender cannot help or timing is very tight. See our private mortgage page for that option.
Who qualifies?
Alternative lenders look at your equity or down payment, the property, your ability to pay and the story behind your credit. Typical situations include a recent consumer proposal now being repaid or discharged, self-employed income that is strong in the bank account but low after write-offs, or debt ratios a little above bank limits.
Your exit plan back to a bank
An alternative mortgage should be a step, not a destination. At the start we set milestones: rebuild credit with on-time payments, file two years of taxes showing your income, or pay down debt. Near the end of the term we re-shop the mortgage with prime lenders so you can move to a lower rate as soon as you qualify.
Costs and disclosure
Every fee, the rate, the term and the total cost of borrowing is disclosed in writing in the FSRA-required disclosure before you commit. There are no surprise charges at closing.
Worked example (example only, OAC)
- Self-employed borrower, 18 months in business, declined by bank on income
- Home value: $750,000; alternative lender mortgage at 80% = $600,000
- Qualified using 12 months of business bank statements
- Two-year term at a sample rate; lender and broker fees disclosed upfront
- Plan: file second year of taxes, then switch to a prime lender at maturity
- Example only, OAC. Rates and fees vary by lender and file.
Frequently asked questions
What is the difference between an A-lender and a B-lender?
A-lenders are the major banks and prime lenders with strict credit and income rules. B-lenders, or alternative lenders, use more flexible rules for credit, income and debt ratios, in exchange for higher rates and sometimes a fee.
Can I go to an alternative lender directly?
Most alternative lenders in Ontario only accept applications through licensed mortgage brokers.
How much down payment do I need?
Usually at least 20% for a purchase, or at least 20% equity remaining for a refinance. Some lenders ask for more depending on credit and the property.
Do alternative lenders accept consumer proposals?
Many do, especially once a proposal is paid off or has a solid payment history. Each lender has its own policy, which is why comparing them matters.
Is there a fee?
Often a lender fee and sometimes a broker fee apply on alternative mortgages. Every fee is disclosed in writing before you sign.
How long will I be with an alternative lender?
Most clients stay for one or two terms of one to three years, then move back to a prime lender once credit or income documents improve.
Are you regulated?
Yes. Jay Shah is a licensed Mortgage Broker with FSRA (Lic. #M22002236) through Affinity Mortgage Solutions Inc., Brokerage #13093.
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Related guides
More guides coming soon
Learn more from CMHC and the Financial Consumer Agency of Canada.
Straight answers, no cost and no obligation for most standard mortgages.
MortgageKraft · Affinity Mortgage Solutions Inc., Brokerage #13093 · Jay Shah, Licensed Mortgage Broker, Lic. #M22002236 · Lenders pay the broker for most standard mortgages, OAC; fees on private/alternative files are disclosed upfront. Rates and examples OAC, subject to change. Not financial advice.