Mortgage Lenders: Banks
As a mortgage brokerage, we work with many financial firms that lend money, which of course includes banks!
You may already know the difference between a bank and a mortgage broker, and understand why a borrower might want to shop for their mortgage from multiple offers to get the best mortgage. You might also have read our article explaining how monoline lenders differ from the banks, but did you know that there are different types of banks that offer mortgages?
In Canada there are 3 different types of banks that offer mortgages and they are classified into Schedule 1, Schedule 2, and Schedule 3. While this classification terminology isn’t used by the government anymore, it’s still widely used in the mortgage industry when talking about the banks.
Let’s go into the details of these different types of banks and explain the rules around them:
What is a Schedule 1 bank?
A Schedule 1 bank is a Canadian financial institution regulated by the Federal Bank Act. Schedule 1 banks are wholly domestic institutions in Canada that must take customer deposits. There are currently 34 Schedule I banks in Canada which you can find linked. These include your classic big Canadian banks like CIBC, RBC, and TD.
The big banks make money from mortgages by collecting interest payments with the property as collateral. Mortgage brokers on the other hand make money through commission from connecting you with a lender. While Schedule 1 banks are regulated by the Canadian government and are at least partially meant to help the Canadian economy, this doesn’t mean that the banks aren’t for-profit businesses who might offer you mortgage terms that aren’t as favourable as other lenders.
What is a Schedule 2 bank?
A Schedule 2 bank is a subsidiary of a foreign bank that is permitted to do business in Canada. Typically, the names of these banks reflect their foreign subsidiary nature, such as Citibank Canada. Citigroup is an American multinational banking institution and Citibank Canada is their Canadian subsidiary. While the official definition of schedule 1, 2, and 3, banks has been technically discontinued by the government, there are around 15 foreign-owned Canadian bank subsidiaries that are in operation.
Schedule 2 banks are “foreign-owned” but are still subject to Canadian banking laws.
What is a Schedule 3 bank?
Schedule III banks are foreign bank branches of foreign institutions that have been authorised under the Bank Act to do banking business in Canada. Unlike Schedule 1 and 2 banks, these institutions are not subject to the Federal Bank Act. Examples of Schedule 3 banks operating in Canada are the Bank of America, and Capital One. These banks are permitted to do business in Canada but do not legally have to take deposits from Canadians. To do business in Canada, Schedule 3 banks must obtain permission to operate from the government and are still subject to certain regulations.
While not technically a bank, credit unions are another financial institution that offer mortgage lending, with some similarities to the banks.
A credit union is a financial institution that is owned and controlled by its members, who are also its customers. Like banks, credit unions can provide a variety of financial services, including savings accounts, loans, and of course mortgages. Credit unions will often offer lower interest rates on loans and mortgages and higher interest rates on savings accounts compared to the big banks. Credit unions also tend to have a more personal approach to banking, with local branches and staff who are invested in the community they serve. Credit unions don’t strictly operate to generate profit as they are “owned” by their members, they focus on providing the members of the union with the best financial services rather than generating the largest profit.
Are there notable differences in the mortgages that are offered by a Schedule 1, 2 or 3 bank or credit union?
The biggest differences between mortgage lenders are the mortgage terms and rates they offer, and their qualification process. With big schedule 1 banks, they can afford to have the strictest qualification criteria and don’t necessarily have to offer the best rates. With a lender like a credit union or a smaller monoline mortgage lender you might get better rates, more favourable mortgage terms, and are more likely to get approved. Other than those factors, a mortgage you get from any of these lenders will allow you to become a homeowner and once you’ve signed-off on your mortgage the pre
By working with a mortgage brokerage like Perch you can shop mortgage offers from banks, monoline lenders, and credit unions, to find the mortgage that’s right for you. Whether you’re struggling to qualify as a self-employed home buyer or are simply looking to find the best mortgage rate on the market, considering all the options when getting your mortgage is the best way to go.
Our mortgage advisors are available to give you personalised advice and help you plan your mortgage strategy at the dial of a phone.