In short
When a traditional lender refuses (self-employed income, damaged credit, exceeded ratios), a B lender — a regulated institution — can say yes, at the price of a rate about 1 to 2 points higher and setup fees (often ~1% of the loan). As an example, on a $400,000 loan, 6.5% instead of 5.0% costs about $363 more a month — i.e., fees included, around $10,000 in the first year. A B loan is a 12-to-36-month bridge back to an A rate — never a destination.
The three most frequent refusals — and why they are not final
The bank's refusal is not a verdict on your project — it is a verdict on the box your file does not fit into. Hard-to-document income: self-employed with an optimized net, commission income, a young business — the traditional lender wants a two-year average; the alternative one accepts more flexible proof (bank statements, contracts). Damaged credit: late payments, a consumer proposal, a discharged bankruptcy — below a certain score, the A lender closes; the B prices the risk instead of refusing it. Exceeded ratios: the stress test caps borrowing at A lenders; some Bs allow higher debt ratios, for a price in rate.
For all these files, the market has a middle tier — regulated, structured, but more expensive. The only real question is arithmetic: how much does the yes cost, and how long must it last?
The market's three tiers: A, B, private
The A lender — banks, credit unions, virtual lenders — offers the best rates to standard files. The B lender — also a regulated institution — takes the atypical files: a rate about 1 to 2 points higher, setup fees often around 1% of the loan, short terms (1 to 3 years), and generally at least 20% down payment or equity. The private lender, finally, is the last resort: interest-only, rates often 9 to 12% and up, high fees — defensible to unblock an urgent, short situation, dangerous as a permanent regime.
The basic discipline: never go one tier lower than necessary, nor stay longer than planned.
Interactive tool
The "price of yes", in 20 seconds
Compare an A loan and a B loan for your amount: payment gap, and total first-year extra cost, fees included.
25-year amortization. Year-1 extra cost = approximate interest gap on the balance + setup fees. For guidance only — every B lender has its own grid; have real offers quantified.
A B loan is signed together with its exit door
The golden rule: you only enter B with a plan to leave. At signing, you establish what caused the A refusal and the schedule to repair it: rebuild the credit score (automated payments, card utilization under 30%), line up two presentable net-income years for the self-employed, clear the debt that crushed the ratios — sometimes via the home's own equity.
The B loan's short term is not a flaw: it is the exit appointment. At maturity, a repaired file re-applies to an A lender — and the monthly surcharge disappears. Building that plan, picking the right B lender among dozens and negotiating the fees: that is precisely the job of a mortgage broker, who has access to lenders the branches do not offer.
Frequently asked questions
What is a B (or alternative) lender?
A regulated financial institution that accepts the files traditional ('A') lenders refuse: hard-to-document self-employed income, damaged credit, exceeded debt ratios. In exchange: a rate about 1 to 2 points higher, setup fees (often around 1% of the loan) and short terms of 1 to 3 years.
How much does a B loan cost compared with an A loan?
As an example, on a $400,000 loan, going from 5.0% to 6.5% adds about $363 a month; with 1% setup fees ($4,000), the first year costs about $10,000 more than in A. That is the 'price of yes' — to be compared with the cost of giving up the purchase or losing the property.
Is a B loan permanent?
No — and it never should be. A B loan is designed as a 12-to-36-month bridge: the time to rebuild the credit score, line up two years of net income, or clear the debts that sank the ratios. At maturity, a repaired file goes back to an A lender. The exit strategy is planned at signing.
What is the difference between a B lender and a private lender?
The B lender is a regulated institution with moderately higher rates. The private lender (an individual or fund) is the last resort: interest-only, rates often 9 to 12% and up, high fees, very short horizon. Useful in specific urgent situations, but to be tightly framed — never as a lasting solution.
The rate gaps and fees cited are orders of magnitude that vary by lender and file: confirm any offer with a licensed professional.
Go further
A refusal? Have the real options assessed
B lenders are not offered at the branch counter: they go through brokers. Payotte verifies only one mortgage broker per sector, on facts — not on an advertising budget.
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