Big Banks vs. Alternative Lenders: The Battle for Your Mortgage in Canada

Rocket Mortgage recently announced its exit from Canada, and the reason is clear—Canada’s mortgage market makes it extremely difficult for non-bank lenders to compete with the country’s major banks.

This raises an important question for Canadian homebuyers: Should you get a mortgage from a big bank or explore alternative lenders?

Let’s break down the key differences, pros, and cons of each option so you can make the best decision for your situation.

Big Banks: The Dominant Players

Canada’s mortgage industry is largely controlled by the Big Six banks:

• RBC (Royal Bank of Canada)

• TD Canada Trust

• Scotiabank

• BMO (Bank of Montreal)

• CIBC (Canadian Imperial Bank of Commerce)

• National Bank of Canada

These banks provide the majority of mortgages in Canada and benefit from special access to low-cost funding that their competitors don’t have.

Advantages of Getting a Mortgage from a Big Bank

✅ Lower Interest Rates – The big banks typically offer the lowest mortgage rates on the market because they have access to cheaper funding sources.

✅ Better Stability & Reputation – Big banks have a long history, financial stability, and strong reputations, making them a secure choice for borrowers.

✅ Convenience & All-in-One Services – Since most Canadians already bank with one of the Big Six, it’s easy to bundle services like chequing accounts, credit cards, and lines of credit.

✅ More Mortgage Options – They offer a variety of mortgage products, including fixed-rate, variable-rate, and hybrid mortgages.

Disadvantages of Big Banks

❌ Stricter Approval Requirements – The big banks have very strict lending criteria, making it harder for self-employed individuals, people with lower credit scores, or non-traditional income sources to get approved.

❌ Less Flexibility – If your financial situation changes, it can be difficult to adjust the terms of your mortgage (e.g., breaking your mortgage, refinancing, or making extra payments).

❌ Limited Options for Unique Borrowers – If you don’t fit the standard mold of a borrower, you may be rejected by big banks even if you can afford a mortgage.

Alternative Lenders: The Underdogs

Alternative lenders (also called monoline lenders, credit unions, and private lenders) are non-bank financial institutions that provide mortgage loans. Examples include:

• Credit unions (e.g., Meridian, DUCA, FirstOntario)

• Mortgage finance companies (e.g., MCAP, First National)

• Private lenders (investors or companies that provide direct loans)

These lenders compete with banks but don’t have the same advantages in terms of funding.

Advantages of Alternative Lenders

✅ Easier Approval for Borrowers – Alternative lenders are more flexible in approving borrowers, making them a good option for:

• Self-employed individuals

• People with bad credit

• New immigrants without Canadian credit history

• Real estate investors

✅ More Personalized Service – Many alternative lenders, especially credit unions, offer better customer service and more personal relationships with clients.

✅ Creative Mortgage Solutions – Some lenders allow longer amortization periods (e.g., 30 years), interest-only payments, or customized mortgage products that big banks don’t offer.

✅ More Willing to Negotiate Terms – Private lenders and credit unions often have more flexible repayment options and less strict penalties for early repayment.

Disadvantages of Alternative Lenders

❌ Higher Interest Rates – Because these lenders don’t have access to cheap funding, they often charge higher mortgage rates than the big banks.

❌ Fewer Protections & Regulations – Some private lenders aren’t regulated in the same way banks are, meaning they can charge higher fees, stricter penalties, and different loan conditions.

❌ Higher Fees & Costs – Many alternative lenders charge extra fees for processing, broker commissions, and legal costs that don’t exist with big banks.

Which One Should You Choose?

Go with a Big Bank if:

✅ You have strong credit, stable income, and a large down payment
✅ You want the lowest possible interest rate
✅ You prefer a well-known, reputable lender
✅ You don’t need creative financing solutions

Consider an Alternative Lender if:

✅ You are self-employed or have irregular income
✅ Your credit isn’t perfect
✅ You need a flexible mortgage solution
✅ You want a lender that provides personalized service

The Takeaway

Canada’s mortgage market is designed in a way that gives big banks a huge advantage, making it difficult for alternative lenders to compete. As a result, banks tend to offer better rates but have stricter lending rules, while alternative lenders offer more flexibility but at a higher cost.

With Rocket Mortgage leaving Canada, we’re seeing once again how hard it is for competition to thrive in the Canadian mortgage space. Until the government steps in to level the playing field, Canadians will continue to have fewer choices and pay more for mortgages.

Final Tip:

Regardless of which lender you choose, always shop around and compare mortgage rates before making a decision. Working with a mortgage broker can help you access different lenders and find the best option for your financial situation.

Would you like to discuss mortgage options or need help navigating the home-buying process? Let’s connect! 🚀🏡