Sunday, 19 July 2015

Monolines, Alternatives, Broker Exclusive...What are they???


With so many different names for these types of lenders(Monoline, Alternative, Broker Exclusive), now might be a good time to clear the air and clarify what all these things mean to you.

In the mortgage world, you will often hear the term "Monoline Lender" thrown around as if everyone should know what it means and how they operate. In reality, not many people truly understand the difference these companies and the big banks.

Define: 

Monoline: A financial institution which focuses on dealing in only one specific type of financial service.

 

The Difference

These financial institutions(much like mortgage brokers!), are specialists in their fields. They deal specifically with mortgage lending and as such can be relied upon to have competitive products, rates, and extensive knowledge of their products and the mortgage industry.

A second defining feature of most Monoline lenders is that they do not usually have a network of branches and representatives open to the public. It is for this same reason that people are sometimes unfamiliar with the names and logos of these institutions. However, it should be noted that these institutions are regulated and controlled by many of the same sets of rules as the banks. They are required to be as reliable, as transparent, and to uphold the same or higher standards as their big bank counterparts.

The benefit to you is that you are able to reap the savings of the significantly lower overhead of these lenders:

"By having no storefront, a monoline lender is able to keep their costs down, offer you preferential rates, products and service" Andrew Howard, Merix Financial
  
You get all the benefits of a large financial powerhouse, without paying for the comfy couches and rows upon rows of tellers and ATMs.

Why Doesn't Everyone Choose a Monoline?

When my spouse and I first started shopping for houses, we knew very little about mortgages or the finance industry. We had picked the house and we had a mortgage broker working hard on our behalf, but we didn't truly understand the benefits or potential savings of using a broker exclusive, or monoline lender. For some reason(hint: Big bank advertising $$$$), we were unsure about the security of these institutions and were concerned about the inconvenience of not having a local branch. As a result, we chose to place our mortgage with a large, well-known bank.

The truth is that you have every bit as much security in a monoline as with a bank. As I touched on earlier, they are bound by the same rules and regulations as the banks and you can therefore expect the same type of service and long-term security from both. And while your monoline may not have a branch you can stroll into on every corner, they do have exceptional customer service teams available over the phone, internet, or through your local mortgage broker(I'm always here to help if you have a problem! Contact Me).

In Hindsight

If I had it to do over again, I would take my time to research my mortgage options more carefully before making a final decision. In my case, that big bank we placed our mortgage with also came with some BIG fees and penalties. Not only did we pay thousands in higher interest over the years, but we are also stuck with a HUGE pre-payment penalty when we are ready to move on to a new home.

For some more info, check out this article detailing the dreaded "IRD" penalty, and how you can be aware of the implications of your lender's unique early payout penalties.


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