Karen Explains Mortgages | Alternative & B Lending
Nobody wants to pay a higher mortgage rate. And I would never recommend paying more for financing without a reason. But there is a mistake I see people make when comparing mortgages:
They compare the interest rate without comparing what the financing actually accomplishes.
For a business owner, that can be particularly important.
Prime Isn't Always Available
Traditional lenders generally offer the lowest mortgage rates because they also have some of the strictest qualification requirements. If you're self-employed, minimize personal taxable income, have a complicated corporate structure, recently started a business, or have income that doesn't fit neatly into a traditional calculation, you may not qualify for conventional financing. That's where B or alternative lending can become useful. The interest rate and fees are generally higher. But that doesn't automatically make it bad financing.
Ask What the Financing Solves
Does it allow me to maximize tax deductions and save on paying higher taxes?
Some accountants recommend taking a higher income and reporting it on your Notice of Assessment for CCRA. The banks will now qualify you on that amount. It is a solution, but may be a costly one. Taxation is often higher than B rate lending. A lot of my business owners want to stay in B lending and maximize tax deductions. It just makes financial sense.
High debt matters too
Imagine a business owner carrying expensive unsecured debt while also having substantial equity in their home. Or someone who needs capital to complete a business expansion. Or a borrower who needs one or two years to clean up their finances before returning to conventional lending. In those situations, I don't start by asking:
“Which mortgage has the lowest rate?”
I start with:
“What are we trying to accomplish?”
Then we calculate the total cost. A higher-rate mortgage that eliminates significantly more expensive debt, improves monthly cash flow, or creates a bridge to a better financial position can sometimes make sense. A higher-rate mortgage with no clear strategy behind it may not.
Instead of looking at alternative lending as a failure to qualify at a bank, we can sometimes use it as a financial bridge or a real solution for successful business owners.
Rate Is Important. Strategy Is More Important.
The lowest interest rate is wonderful when it comes with the financing you actually need. But mortgages have to be evaluated based on the entire financial picture.
Rate. Fees. Penalties. Cash flow. Flexibility. Qualification. And your exit strategy.
That's particularly true for business owners. If your bank has said no—or the financing they offered doesn't accomplish what you need—don't assume you've reached the end of the road. Let's look at the numbers and determine whether another lending strategy makes financial sense.