You’ve likely only heard the term ‘monoline’ lender if you’ve had a mortgage with one and/or you’ve used a mortgage broker to negotiate home financing on your behalf.
Although not as well known as banks and credit unions, monolines provide excellent mortgage solutions to meet the needs of a variety of different borrowers.
While banks and credit unions provide an assortment of financial products and services in addition to offering mortgage financing, monolines solely concentrate on mortgages. The term ‘mono’ literally means one, as in a singular focus.
Monolines won’t solicit you to open bank accounts or try to sell you on any other type of financial product, and they’re only available through a mortgage broker.
Monoline lenders have a great reputation countrywide and follow the same rules as Canadian banks, so you’re well protected.
Keeping the banks competitive
As mortgage brokers, we truly appreciate monolines in the mortgage space as they offer very competitive pricing and specialized products that help us ensure we find the mortgage products and rates that best match our clients’ needs.
Monolines also help keep the banks competitive. In fact, monoline lenders often source their funds through the big banks – even ones that don’t lend directly through the mortgage brokering channel.
Monolines are frequently able to pass along better deals to borrowers because they don’t face the high overhead costs associated with branch locations.
Additionally, if you must break your mortgage early with a monoline, you’ll likely pay a lot less in penalties than if you have your mortgage placed with a major bank. That’s because banks and monolines calculate penalties differently. Early exit penalties, for instance, are typically calculated using three months’ interest or the interest rate differential (IRD) – whichever is higher.
The IRD is the penalty that can really add up with the banks. Monolines calculate the IRD based on a discounted rate, while the banks use a higher posted rate. This often means the difference of thousands of dollars.
If you’re considering breaking your mortgage early – which the majority of Canadian mortgage holders end up doing on a standard five-year fixed-rate mortgage – we can help you decide if it makes sense or if you should wait out your current term.
Just by knowing the importance of asking about penalty calculations for your next mortgage can save you a lot of hassle and money.
Do you have questions about breaking your mortgage early? We’re always happy to help! Answers are just a call or email away.