Mortgage Lenders: Monoline lenders

If you’ve read about the differences between a bank and a mortgage broker, you’ll know that there can be advantages to getting a mortgage from a lender other than a big bank.

As a digital mortgage brokerage, Perch connects you with multiple mortgage lenders so you can get the best mortgage that you qualify for. What you may not know, is that among these lenders are many different types of financial firms that offer mortgages, the banks included!

Other than banks, the most common type of lender mortgage brokers work with are called “monoline lenders”

We got our mortgage industry expert Robert Malcolm to go into detail on what a monoline lender is and explain why you might want to consider one when shopping for your mortgage.

Here’s how monoline lenders work:

Monoline lenders:

A monoline lender is a financial company that focuses exclusively on providing mortgages to clients. Monoline lenders work primarily through mortgage brokers to find their clients. Because of this, you may not be familiar with their brand prior to getting a mortgage. They have no other financial products to sell to you, like chequing accounts or credit cards, which also means they reduce overhead costs and can often pass those savings on to you.

Some examples of monoline lenders we work with are:  First National, MCAP, and Strive.

Benefits of monoline lenders:

Monoline lenders make mortgages their whole business, which means they do things like insure their mortgages in bulk and are more flexible in their lending. For these reasons, monoline lenders can often offer better interest rates and lower penalties for breaking your mortgage. 

When big banks won’t offer a mortgage to someone, monoline lenders still might. If you’re in a situation where it’s difficult to qualify with a traditional bank, for example if you’re self-employed or a real estate investor with multiple properties, a monoline lender may be a great option that’s more flexible and cost-effective. 

Another benefit of monoline lenders is they often offer more payment flexibility, meaning less penalties for paying down your mortgage than with a bank. Quite often, mortgage penalties will be multiple percentage points higher with a bank than with a monoline mortgage lender. While the penalties across each lender differs, you’re usually going to be paying thousands more in fees with a big bank compared to a monoline lender. On a $500,000 mortgage this could be the difference between paying $15,000 or paying $5,000 to break your mortgage terms.

Downsides of monoline lenders:

So are there any downsides to going with a monoline lender over a bank? Well the biggest one is probably the lack of in-person storefronts for you to sit down and talk to a representative like you would at a bank. But if you’re someone who doesn’t value doing business in person and would rather get the best deal with minimal interaction, a monoline lender could be a great option.

Another concern some may have is the “reputation” of lenders other than a big bank. Unfortunately if your mortgage lender goes out of business for some reason, your mortgage balance isn’t written off… but you won’t have anything to worry about. If a mortgage lender were to go under for some reason, they would simply sell their mortgages to another financial institution, probably one of the banks! In that case, your mortgage will likely have the exact same terms as you had with your original lender until it comes time to renew. It’s worth noting that this situation is rare and it’s very unlikely your mortgage lender would go out of business.

Working with a mortgage broker like Perch allows you to shop offers from multiple mortgage lenders which will give you the best chance to find a mortgage that works for you. This means better rates, better terms, and easier qualification than going with a bank.

Sign-up for Perch today and you can be shopping mortgage offers today.