In the Canadian mortgage business, "B" lending is lending to "subprime borrowers." These are individuals who do not meet the strict qualification criteria of traditional "A" lenders, such as major banks, but still have sufficient creditworthiness to qualify for a mortgage from alternative or "B" lenders.
Such customers typically face challenges in securing financing from A lenders due to factors like:
- Lower credit scores (e.g., under 600)
- Derogatory credit histories (e.g., collections or consumer proposals)
- Non-traditional income proof (e.g., "bank statements," "stated income," etc.)
- High debt service ratios (e.g., total debt service ratios of 50%+)
- Other financial complexities.
To offset this extra risk, B lenders charge:
- Higher rates (usually at least 100 to 200 bps higher)
- Lender fees (usually at least 1% to 2% of the loan amount)
Most B mortgages are shorter-term loans (e.g., one or two years) that are arranged through mortgage brokers. Those brokers sometimes charge broker fees of 50 to 150+ bps, particularly where the lender isn't paying them a referral fee.
Examples of "B" lenders in Canada include:
- Home Trust
- Equitable Bank
- MCAP Eclipse
- First National Excalibur
- Haventree Bank
- Bridgewater Bank
- Canadian Western Bank
- Community Trust
- CMLS Aveo
B mortgages are usually meant to be temporary financing, acting as a bridge until the borrower can liquidate a property or qualify for better financing elsewhere.