Who this is for: Homeowners comparing lender types for a second mortgage, who want to know why the prices differ and which option to try first.
On this page
Banks, credit unions, B-lenders and private lenders all lend against the equity in your home. They do not lend to the same borrowers or at the same price. Understanding why helps you ask in the right order, and it keeps you from taking the first yes when a cheaper one was available.
What the bank option is
When people say bank, they usually mean a federally regulated lender, and those follow national rules. The Office of the Superintendent of Financial Institutions applies its mortgage underwriting guideline to banks, trust and loan companies, and insurers that underwrite residential mortgages. Its published expectation is that these lenders cap home equity lines of credit at 65% of the home’s value.
OSFI also says that lending above 65% should be amortizing and not re-advanceable, and that a combined plan cannot exceed 80% of value. The Financial Consumer Agency of Canada describes the same pattern from the borrower’s side: a line of credit is limited to 65% of value, and a second mortgage or home equity loan to 80%, minus what you owe.
Where B-lenders and private lenders fit
B-lender is a trade term, not a legal one, and none of the official sources used here defines it. It generally describes a lender whose rules are more flexible than the largest banks, but who prices below a fully private lender. Ask each lender who regulates it and how it is funded.
Private lenders are individuals, pooled funds or companies lending their own or investors’ money. They rely mainly on the equity and the plan to repay. The agency lists banks, credit unions, financing companies, mortgage investment companies and mortgage brokers as lender types and says rates can depend on which type you choose, which is the reason to shop across the tiers.
When the bank or B-lender route can make sense
It can make sense when your credit and income are close to what a bank accepts, and the amount you want fits under its ceiling. The first worked example shows the idea: on a $900,000 home the bank room can look small, and other lenders open the rest, but at a price. If the bank’s room covers your need, you rarely need to look elsewhere.
It also makes sense when your file has a single sticking point a B-lender can explain: a recent job change, a self-employed income pattern, or a single late payment. A middle tier may look past it at lower cost than a private lender.
When it makes things worse
It makes things worse when you chase a cheaper tier past the point of reason. Each application may involve a credit check and an appraisal fee, and an applicant who is declined three times has paid for three looks. It also makes things worse when you take a low rate with terms that do not fit, such as a short renewal window or a prepayment penalty you cannot afford.
If you need more than the middle tier will lend, taking it and then borrowing more elsewhere can leave several lenders with claims on the same home, and each wants to be paid.
What it really costs
The second worked example sets a bank, a B-lender and a private lender side by side on assumed terms. The numbers are invented, but the shape is real: interest, lender fees and third-party costs rise as you move down the ladder. The agency lists appraisal, title search, title insurance and legal fees as the costs to expect when borrowing against equity, and says a second mortgage rate is usually higher than a first.
Ask each lender for the total cost for the full term in dollars. Compare quotes with the calculator. A one percent difference in the rate can be smaller than a fee or a penalty that is buried in the terms.
The risk to your home
Whoever the lender is, the home is the security. The agency says you may face serious consequences, including foreclosure, if you cannot repay. A second mortgage sits behind your first, and both lenders have rights over the same property. The lender type changes the price and the terms, not the basic fact that missing payments puts the home at risk.
Short terms matter in this tier. A lender that offers a year at a time will ask the refinance question more often. If you may not qualify for a cheaper loan in twelve months, prefer a longer term, even at a higher rate.
What to try first, in order
Start with the lender you already use and ask what its ceiling is for your file, in writing. If your credit and income are sound, ask for a home equity line of credit and compare it with a second mortgage using the HELOC and second mortgage comparison. Then ask a licensed mortgage professional about B-lenders, and finally private lenders.
If you are asking because a bank declined you for credit reasons, the bad credit page explains how pricing changes. If the debt is the real problem, a Licensed Insolvency Trustee can explain a consumer proposal and an initial meeting is typically free of charge, and selling the home is also a real option.
How the exit works
The best exit from a more expensive tier is a move to a cheaper one. A private or B-lender second can be refinanced into a bank loan once your income, credit or equity improves. Ask what would have to change for a bank to approve you, and set a date to check it.
Other exits are a sale of the home or a payoff from a known sum. Write the exit down, with a date and an amount, and test it against a year where your income falls short.
What to ask before you sign
- Who regulates the lender, and who is arranging the loan and under what licence.
- The total cost of borrowing in dollars for the full term, with every fee.
- The term, and what it costs to renew or extend.
- What happens after one late payment.
- Whether you can repay early, and what that costs.
If you want a licensed mortgage professional in your province to ask several lenders for you, you can check your options. You can decline any offer, and none is promised.
Room to borrow on a $900,000 home with $500,000 owed, by lender limit
Made-up figures, using the limits described by the sources: OSFI's expectation that federally regulated lenders cap home equity lines at 65% of value, and the usual 80% maximum the Financial Consumer Agency of Canada gives for borrowing against a home. Individual lenders may set lower limits, and how a line and a mortgage are counted together varies.
- Home value
- $900,000
- Owed on the first mortgage
- $500,000
- Bank equity line ceiling at 65% of value
- $585,000
- Room under the 65% ceiling
- $85,000
- Ceiling at 80% of value
- $720,000
- Room between 65% and 80%
- $135,000
$900,000 x 65%
$585,000 minus $500,000
$900,000 x 80%
A price ladder: $100,000 for one year from three kinds of lender
Made-up figures, not typical or current terms, and not a claim about what any lender charges. Interest only for one year. The bank case is an assumed 7% with $500 of costs. The B-lender case is an assumed 9% with a 1% fee and $1,500 of costs. The private case is an assumed 12% with a 3.5% fee and $2,000 of costs.
- Bank: interest plus costs
- $7,500
- B-lender: interest, fee and costs
- $11,500
- Private: interest, fee and costs
- $17,500
- Gap from bank to B-lender
- $4,000
- Gap from bank to private
- $10,000
$7,000 + $500
$9,000 + $1,000 + $1,500
$12,000 + $3,500 + $2,000
Questions people ask
What exactly is a B-lender?
There is no official definition in the sources used on this site. In practice the term describes lenders whose rules are more flexible than the major banks but who are priced below fully private lenders. Ask any lender who regulates it and how its rates compare with a bank's.
Why do banks stop at certain limits?
OSFI's guidance says federally regulated lenders are expected to cap home equity lines at 65% of value, and that lending above 65% should be amortizing and not re-advanceable. Combined products cannot go above 80%. Those rules apply to federally regulated institutions, not to every lender.
Is the cheapest lender always the right one?
Not always. A low rate with strict repayment terms, a short renewal window or a prepayment penalty can cost more than a higher rate with flexible terms. Compare total cost for the time you will really hold the loan, and compare what each lender requires of you.
Can I apply to several lenders at once?
You can, but each application may involve a credit check and fees such as an appraisal. A licensed mortgage professional can sometimes ask several lenders on your behalf, which can save repeated checks. Ask how many lenders they work with and whether any fees are charged up front.
Does the lender type change my risk of losing the home?
The legal risk is the same for any mortgage on your home: if you cannot repay, the lender can enforce. What changes is the price, the term and how a lender treats a late payment. A lender with a short term makes you face the next step sooner.