What is a Monoline lender?
A Monoline lender, by definition, is a mortgage lender that focuses on just mortgages. They do not have any other products that can be cross-sold and most Monolines securitize their mortgages, instead of keeping them on their balance sheet. Monolines are secure, follow the same rules as all Canadian Banks and they deal exclusively with Mortgage Advisors on their clients’ behalf.
Advantages of a Monoline lender
- They focus on one thing: mortgages. For you that also means they do not try to cross-sell you into credit cards, investments or insurance.
- Monolines have a much lower IRD (Interest Rate Differential) pre-payment penalty calculation, which is important if you are required to get out of your mortgage before the end of your term. In my own personal experience the Monoline penalties are up to 2/3 less than those of the big-six banks.
- They often have products that specialize in a range of solutions aimed at borrowers with lower credit scores and those with self-employed income sources.
- No storefronts mean lower overhead which in turn they pass along to you in the form of lower interest rates.
- Monolines are heavily regulated and follow the same lending guidelines as all the major banks in Canada
- Pre-payment options are often greater than the big-six banks offer.
- Online access to your mortgage and customer service departments is excellent – it has to be – they don’t have branches.
This article by financial writer Rob Carrick was published in the Globe and Mail comparing Scotiabank to ING regarding their vast differences in penalty calculations. As much as we try to explain what a Monoline differs from a bank, an article from a third party drives it home.
Even when the rates are the same between banks and the Monoline borrowers should always factor the potential IRD into their decision making as one never knows what will happen in the future.
To summarize, Monoline lenders tend to provide better rates over the big banks, have favourable penalty calculations, and foster relationships with brokers to ensure the business comes back to them (including having a renewal model to reduce churn).