Don’t shun the small lender

Matt Chan • August 7, 2012

The Globe and Mail recently published a very good article on why you should be open to using a small lender.

Whether you are a first time home buyer or refinancing your home, there are many factors to choose from when deciding on which lender to go with.  Although there are many good reasons to go with a large major lender (i.e. one of the major banks or a major credit union), there are also many reasons why you should consider a smaller lender.

Small lenders may offer better pricing that could mean savings for you over the term of the mortgage.  Also, small lenders may also offer better pricing when your mortgage is up for renewal.  In general, even if the initial rates are the same, each lender (large or small) will have their own set of rules including: prepayment privileges, portability, prepayment penalties and payment increases.

Sometimes the biggest reason to use a small lender is their ability to underwrite your mortgage differently.  Some larger banks and credit unions may be fairly strict with certain rules about underwriting.  They have standard guidelines that are very set with little flexibility for exceptions.  A common reason for this is because a lot of the big decisions are made in another city (i.e. Toronto) and are not comfortable or familiar with the local Vancouver market.

Although most lenders have general guidelines, some smaller lenders are more open to seeing an application on a ‘make sense’ basis.  They have the ability to be a bit more open minded and flexible to make an exception on an application that may either not get approved by a big bank or get approved with a higher rate.  These scenarios are common when someone buys a more unique home in the Vancouver area or may not be able to have traditional proof of income (i.e. self employed/business for self buyers).

The article addresses a lot of good points on why you should not fear a small lender.  If a small lender exits the market, they are usually bought out and the terms of the mortgage would generally be assumed by the new purchasing lender.

In the end, choose a lender that offers you a product that make sense for you.

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