What is an alternative mortgage?
An alternative mortgage is a mortgage from a lender outside the prime “A-lender” channel of big banks and prime lenders, arranged for a borrower whose file doesn’t fit prime rules.
When a bank’s underwriting rules decline a file, an alternative lender steps in with more flexible underwriting, at a higher price. It’s not a lesser product by nature; it’s a different set of rules for borrowers whose real financial life doesn’t fit the bank’s narrow boxes.
Alternative lending runs in three tiers, from most bank-like to most flexible: alt-A programs, regulated B-lenders, and private lenders and MICs. Each is generally more flexible, and costlier, than the last. The unifying idea is that these lenders look past the single automated decline a bank issues and underwrite the whole story. For the full service overview, see our alternative lending page.
Who alternative mortgages help
Alternative mortgages exist for solid borrowers who simply don’t tick every A-lender box. The most common situations:
- Bruised credit: a low score, collections, or a couple of missed payments that need time to heal (bad credit mortgage).
- Self-employed or complex income: write-downs, dividends, retained earnings, commission or contract income that doesn’t show clean on a T4 (self-employed mortgage).
- CRA tax debt: an unpaid personal, HST/GST or corporate balance a bank won’t look past (CRA debt mortgage).
- A consumer proposal or bankruptcy: active or recently discharged (consumer proposal, after bankruptcy).
- Tight debt-service ratios under the federal stress test, or a property type the bank dislikes.
If any of these is you, a bank decline isn’t a verdict on your finances. It’s just the wrong lender for your file this year.
The three tiers: B-lender, alt-A, and private
A B-lender is an established institution, such as Home Trust, Equitable Bank, Haventree, MCAN, Community Trust or RFA, with relaxed underwriting. It still verifies income and property but accepts flexible income and bruised credit, usually takes a few weeks to close, and prices above a bank. It’s the usual first stop beyond the banks (B-lender mortgage).
An alt-A program sits at the top of the B world for strong-but-complex files (for example, a well-qualified self-employed borrower using stated income). A private lender is a MIC, private company or individual that underwrites your equity first, with far less weight on credit and income1; it’s the fastest and most expensive tier, used for speed or for files a B-lender won’t touch (private mortgage). See the full side-by-side in our A vs B vs private guide.
Why an alternative lender can approve you when a bank can't
Alternative lenders flex on the things bank rules treat as hard limits: debt-service ratios, income documentation and credit history. Private lenders are also outside OSFI’s uninsured stress test, which requires federally regulated lenders to qualify you at the greater of your contract rate plus 2% or 5.25%2.
Be precise about the stress test, though. Many B-lenders are federally regulated trust companies or banks, so they still apply OSFI’s underwriting guideline, including the qualifying rate3. What they change is the rest of the box: they accept higher debt ratios, a year of self-employment, a bruised score or an active CRA balance, and price for the added risk rather than declining for it. That’s the whole difference. It is not a loophole, just a different, risk-priced rulebook.
What alternative mortgages cost
You pay more, deliberately and temporarily. As an illustrative guide, not today’s rates: a B-lender often runs roughly 0.5–1.5% above A-lender pricing plus a lender fee of about 1%; private financing is higher still. CMHC reported that the largest private lenders averaged about 9.6% on single-family lending in Q3 20254, and private loans usually add lender and broker fees of about 1–2% each. On most standard B-lender files the lender pays the brokerage, so there’s no separate broker fee to you; where there is one, it must be disclosed in writing and included in your cost of borrowing5.
The right way to judge the cost is against the alternative of doing nothing: waiting two years to qualify at a bank, or losing a purchase, a refinance, or (in a crisis) a home. Used as a short bridge, the premium is usually modest next to what it unlocks. Our full cost breakdown is in how much an alternative mortgage costs.
The exit: alternative lending is a bridge, not a destination
The single most important thing to understand about an alternative mortgage is that it’s temporary by design. A good broker sets the exit on day one: the specific milestone that lets you refinance back to A-lender pricing, usually in 12–24 months. Depending on why the bank said no, that’s rebuilt credit, two seasoned Notices of Assessment, a discharged proposal or bankruptcy, or a cleared CRA balance.
The refinance-trigger date is set at funding and the file is monitored, so the day you qualify for prime pricing, you move. Keep in mind that a bank refinance is capped at 80% of your home’s value6, so the exit needs enough equity as well as a healed file. A mortgage without an exit plan is where alternative lending goes wrong; with one, it’s a precise tool. See how to refinance from a B-lender.
Is an alternative mortgage right for you?
It fits when a bank has declined you (or will) but you have real income or real equity and a credible path back to prime. It’s the wrong choice when a bank would actually approve you.
No one should pay an alternative premium unnecessarily. It’s also a serious commitment, not a quick fix, so the exit plan has to be real.
Mortgage Squad Advisors is an FSRA-licensed Ontario brokerage (FSRA #13737). We arrange all three tiers in Ontario and will tell you honestly which one fits, including when the answer is to fix the file and go straight to a bank; files outside Ontario are handled by licensed mortgage professionals in your province through our partner network. Start on our alternative lending page, or get a no-obligation assessment, with no credit pull to begin.