Credit Unions – An Alternative Lender
One of the primary attractions for Credit Unions is that they are regulated provincially, so they are not restricted by the Federal regulations that banks and monoline lenders have to adhere to*.
*When purchases have down payments of less than 20%, all mortgage loans are required to have mortgage default insurance and therefore are still subject to federal guidelines of CMHC and other insurers.
In most cases Credit Unions have the advantage of not being federally regulated which has implemented strict guidelines for loans that includes rules loan documentation, income documentation and tight debt services ratios (how much you can afford).
Mind The Gap
The gap between federal and provincial rules do allow credit unions to compete on some products the banks are unable to provide. Credit Unions are able to offer competitively low interest rates for files that a bank or monoline lender would not be able to fund. In many cases, these files would go to private lenders whose interest rates are sometimes double those of the credit unions’.
An additional benefit of Credit Unions is that they have the ability to share in the dividends with their clients – which can ultimately lower your effective mortgage rate because you are getting cash back.
There are some cons when dealing with a Credit Union…often they don’t offer mortgages outside their lending areas so if you are with a smaller Credit Union you may not be able to port your mortgage (bring your mortgage to a new property) if you decide to move. This is a very important consideration. Life situations do change, and if you have to move before your mortgage term is up, you run the risk of having to pay some hefty penalties.
You may also be obligated to open an account at the Credit Union and in some cases maintain a balance where the mortgage amount is withdrawn from, which is a possible deterrent for some people. There are often additional conditions they sometimes require in order to obtain their very best rates.
Another Reason to Contact Your Mortgage Broker
As always, my advice is to contact your Dominion Lending Centres mortgage broker – to discuss all mortgage lender choices and find a lender that is the right fit for your personal needs. As a source of experienced and unbiased information about all types of lenders, your broker is the gateway to your perfect home mortgage.