When people talk about “private lenders versus banks”, it can sound like a choice between two teams. In reality there are three broad kinds of mortgage lender in Alberta, and each is built for different situations. Most homeowners are best served by a bank or credit union. Some fit a B lender. A smaller group, usually for a limited time, need a private lender. Knowing the differences helps you avoid paying more than you need to.
At a Glance
- Banks and credit unions: lowest cost, strictest qualification, long terms
- B lenders: regulated alternative lenders with more flexible rules and moderately higher cost
- Private lenders: equity-focused, flexible, highest cost and shortest terms
- The right choice depends on why a bank will not lend, and how long that will last
- Many people move from private, to B lender, to bank as their situation improves
Banks and credit unions (often called “A lenders”)
The big banks, Alberta credit unions and ATB Financial offer the lowest rates and the longest terms. In exchange, they apply the strictest rules: documented income, debt service ratios within set limits, good credit, and properties that fit standard guidelines. Federally regulated lenders must also qualify borrowers at a minimum qualifying rate, often called the stress test, which can reduce how much you can borrow.
Best for: salaried or well-documented income, solid credit, standard properties.
B lenders (alternative lenders)
B lenders are regulated institutions, such as trust companies and some credit unions, that serve borrowers just outside bank rules. They may accept self-employed income stated differently, higher debt ratios, or recent credit issues. Rates and fees are usually somewhat higher than a bank’s, and terms are often one to three years.
Best for: self-employed borrowers, bruised but recovering credit, or files that narrowly miss bank guidelines.
Private lenders
Private lenders are individuals, groups of investors or mortgage investment corporations. They focus mainly on the property and the equity in it, and can make decisions that do not fit any institutional rulebook. That flexibility comes at a cost: higher interest, lender and brokerage fees, and short terms, often around a year.
Best for: time-sensitive or unusual situations with a clear plan to move on, such as arrears that need clearing, a separation buyout, a purchase before a sale, or income that will be documentable soon.
How they compare
| Bank / credit union | B lender | Private lender | |
|---|---|---|---|
| Main focus | Income, credit, ratios | Income and credit, with more flexibility | Property and equity |
| Relative cost | Lowest | Moderate | Highest |
| Typical term | Several years | One to three years | Often about one year |
| Fees | Few or none | Sometimes a lender fee | Lender and brokerage fees are common |
| Speed | Standard process | Standard process | Can move quickly when the file is complete |
How to work out which fits you
Start with the reason a bank cannot help, then ask how long that reason will last.
- If nothing is stopping a bank, use a bank or credit union. There is no reason to pay more.
- If the issue is documentation or a modest credit problem, a B lender is often the right next stop.
- If the issue is urgent or outside institutional rules, but temporary, a private mortgage can bridge the gap.
- If the issue is that the payment simply is not affordable, more borrowing is unlikely to help. Look at the budget, a sale or professional debt advice first.
The usual path back to lower rates
Private financing works best as a stage, not a destination. A common path looks like this: a private mortgage solves the immediate problem; during the term, payments are made on time, credit is repaired or income is documented; at maturity, the mortgage is refinanced with a B lender or a bank. Planning that path from the start is what keeps the higher cost temporary.
Why use a mortgage broker for this?
A bank can only offer its own products. A licensed mortgage brokerage can compare banks, credit unions, B lenders and private lenders, and tell you which category your file actually belongs in. In Alberta, brokerages and their associates must be licensed by the Real Estate Council of Alberta.
Frequently Asked Questions
Is a credit union a bank?+
Not exactly. Credit unions in Alberta are provincially regulated and set some of their own lending policies, which can make them more flexible than federally regulated banks in some situations. They still generally lend at A-lender rates and terms.
Do private lenders use the stress test?+
The federal minimum qualifying rate applies to federally regulated lenders. Private lenders set their own criteria and focus more on the property and your exit plan, though they still want to see that the payment can be carried.
Can I go from a private mortgage back to a bank?+
Often, yes, once the issue that kept you from qualifying has been resolved. That is the most common goal for a private mortgage, and it is worth planning from day one.
Are B lenders the same as private lenders?+
No. B lenders are regulated financial institutions with longer terms and usually lower costs. Private lenders are individuals or investment companies with more flexibility and higher costs.
Find out which category your file belongs in
If you are not sure whether you need a bank, a B lender or a private lender, NOW Mortgage can review your situation and tell you plainly, including when the cheaper option is available to you. Use the form below to request a call back.