Monoline Lenders

What is a monoline lender?

A monoline lender is typically a non-bank lender (except Home Equity Bank that provides the CHIP reverse mortgage) that does not take deposits, have store fronts, or provide other non-lending products. Its sole business is lending. Mono is a prefix that means one, so you can think of this as a one type of product, or line, lender.  These types of lenders can be publicly traded corporations, such as First National, that raise capital through share sales and pay dividends to its investors.  Another form of monoline lender is a mortgage investment corporation (MIC).  A non-publicly traded corporation that raises capital by selling shares through an Offering Memorandum (OM), MICs also pay dividends to their investors.

Why do monoline lenders exist?

Monoline lenders exist as businesses strictly focused on lending.  Their management teams and staff are typically experienced in mortgage lending and wish to specialize strictly on this niche market of the financial services industry.  This may result in better rates, more competitive prepayment privileges as well as better customer service in some cases.  In other cases, when a monoline lender is a MIC, for example, the lender may be able to fill a gap in the lending market by lending to borrowers who may not qualify with other types of monoline or deposit taking institutions.  Rates may be higher but lending criteria less restrictive.  As you can see, a monoline lender is much more than just a simple class of lenders.  They are a diverse group of lenders that offer many solutions for consumers.

Why don’t monoline lenders take deposits?

Taking deposits and selling other types of products unrelated to mortgage lending can dilute the company’s ability to focus on mortgage lending, reducing its competitiveness and expertise.

Are monoline lenders better, worse or the same as the big banks?

That depends on your perspective, and your needs.  Typically, a mortgage broker will assess a consumer’s needs and determine if a bank or monoline lender is best, based on several factors.  Those factors can include the borrower’s goals, prepayment requirements, rate requirements and qualifications, among others.  Using a qualified mortgage broker can result in the best fit between a lender and borrower.  After all, if you’re a consumer you probably didn’t even know about monoline lenders.  Brokers do much more than just rate shop.

How do monoline lenders’ interest rates compare to the big banks?

Speaking of interest rates, the answer is…it depends.  For example, as of today’s date (July 13, 2020), First National’s 5 year insured rate is 2.14%¹ while TD Bank’s rate is 2.37%².  This doesn’t mean that either one is the right choice for a borrower, just that rates will be different.  When you look at everything in context, rate is just one part, albeit a large part, of the overall picture.  Another monoline lender is offering a 5-year insured rate of 2.59%, but with different qualification criteria.  So you can see that there is more to it than just the rate.  A good broker will help you navigate the process and come up with the right lender for you.

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How do monoline lenders’ penalties compare to the big banks?

Once again, that depends.  Both monoline and deposit taking lenders base their interest rate differential penalty on the difference between the borrower’s current rate and the current interest rate for a similar mortgage.  However, some lenders have a very different interpretation of the term, “similar mortgage.”  For example, MCAP, a monoline lender, states that a similar mortgage is, “the current best rate in effect at the time, being charged by us on a loan with a term that is closest to the remaining term of your Mortgage.”³

TD Bank’s definition is, “The current interest rate for a Similar Mortgage is the Bank’s non-discounted posted rate less any rate reduction or discount received by you for the Fixed Rate Debt, and is determined on the earlier of the date of the prepayment or the date the Bank issues a valid discharge statement.  If the Fixed Rate Debt has been re-financed and additional funds advanced using a blended rate of interest (including advances under the Bank’s portability provision), then the rate reduction will be the weighted average, based on the dollar amount, of the most recent rate reduction or discount received by you prior to the re-financing and the rate reduction on any additional funds advanced at the time of the re-financing.”⁴

Simply put, depending on the lender, monoline or not, you may have a very different (larger) penalty if you decide to repay the mortgage in full during the term of a non-fully open mortgage.

A mortgage broker can help you navigate these confusing waters, as well.

Monoline Lenders in Ontario

The following is a list of monoline lenders in Ontario, including most MICs.