You're self-employed, you have an atypical file, or the bank just declined your application. Someone mentions "B lenders" or "alternative lenders" as a possible path. Here's what that means concretely, what it costs, and most importantly — how not to get stuck there.
A lenders vs B lenders: the distinction
A lenders — traditional banks
The Big 6 (Royal, TD, BMO, CIBC, Scotia, National), Desjardins, and the large credit unions. They lend only to files that fit strict grids: provable income over 2 years with tax slips, credit score ≥ 660, TDS ratios ≤ 44%, stress test passed. Lowest market rates (typically 2-5%).
B lenders — alternative / monoline
MCAP, First National, Equitable Bank, Home Trust, B2B Bank, RFA, CMLS and several others. They lend to files A lenders refuse: self-employed with atypical filings, newcomer without Canadian credit history, atypical property (cottage, multi-unit), credit reconstruction. Higher rates (typically 1-3% above A lenders) and a lender fee often around 1% of the loan.
C lenders / private
Beyond B, there are private lenders: individuals or funds that lend at much higher rates (8-15%) over very short periods. Out of scope here — it's an emergency last resort to use carefully and always through an AMF-licensed broker.
When a B lender is relevant
Five typical profiles where the traditional bank doesn't suffice:
- Self-employed with low declared income (legal tax optimization via deductible expenses). Net income on the tax return doesn't reflect real payment capacity. B lenders look at bank deposits over the past 12-24 months.
- Newcomer without 2 years of Canadian credit history.
- Credit reconstruction after bankruptcy, consumer proposal, or divorce with score impact.
- Non-standard property — multi-unit of 5+ doors, rural property, cottage without four-season access, agricultural land.
- Recent bank refusal for a technical reason (TDS too tight, stress test missed by a hair) — a B lender can accept with extra margin.
The real cost of a B lender
Comparing the same $350,000 loan over 5 years:
| Item | Typical A lender | Typical B lender |
|---|---|---|
| Contract rate | 4.79% | 6.49% |
| Monthly payment (25-year amortization) | $2,010 | $2,350 |
| Lender fee | $0 | $3,500 (1%) |
| Broker fee | $0 (paid by lender) | $1,000-3,500 (sometimes) |
| Additional cost over 5 years | — | ~$24,000 |
Over 5 years, a B lender typically costs $20,000 to $30,000 more than an A lender for the same loan. That's the price of credit access when the traditional channel is closed.
The golden rule: the exit plan
No one should stay at a B lender longer than necessary. When you sign with a B, you must already have an exit plan to an A lender — typically at the end of the first term (12 or 24 months).
The typical exit plan looks like this:
- Year 1-2 at the B lender: you make payments on time, you build income stability.
- Months 18-20: an AMF broker prepares a complete file for submission to an A lender. By then, you have 18-24 months of clean mortgage payment history, your credit score has improved, and your declared income is stronger.
- Months 22-24 (maturity): transfer to an A lender. No penalty (maturity), normal rate, savings of $20-30k over the next 5 years.
Without this plan, the risk is renewing at the B for another 24 months — paying another 1% fee, still at the B rate. Avoid this at all costs.
Questions to ask before signing with a B lender
- What's the ideal term? Often 12 or 24 months, never 5 years, precisely to have a fast exit window to an A.
- Is there a prepayment penalty? Many B lenders have very heavy IRD penalties — verify before committing.
- What are the total fees? Lender fee, broker fee, appraisal fee, notary fees — add everything up to compare honestly with an A lender.
- What criteria will I need to hit to move to an A lender at maturity? The broker should give you a clear roadmap (minimum declared income, target credit score, stability duration).
Common mistakes
1. Going straight to a B without testing the A lenders
Many self-employed people think "I'm self-employed therefore B" automatically. Wrong. Several A lenders accept self-employed borrowers with specific programs (Self-Employed stated income programs, Bank Statement programs). Always test the A lenders first.
2. Signing a 5-year term at a B lender
You pay 5 years of premium without benefiting from the natural short-term exit. Always negotiate 12-24 months.
3. Not reviewing the file mid-term
If you wait for the renewal letter from the B lender, it's too late for a clean transfer to an A. At 6 months from maturity, call an AMF broker back to prepare the transfer.
What Courteo does
Courteo is not a broker. We connect you with a mortgage broker holding an AMF license who has access to both A and B lenders in Quebec, and who knows how to build a B file with a clear exit plan to an A. The worst thing to do with an atypical file is to present it in isolation to a single bank — that's exactly what a broker helps you avoid.
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Article written by the Courteo team. No information here constitutes personalized financial or mortgage advice. For that, connect with a mortgage broker holding an AMF license.