A recent article in Business in Vancouver mentioned that there is now less stigma associated with alternative mortgage solutions, but it also raised concerns about potential risks “such as opaque compensation, high fees, conflicts of interest and predatory lending practices.”
Since I’ve been offering alternative mortgage solutions for over a decade, I feel I should weigh in and clear the air. If your alternative mortgage broker seems opaque or shady, you should run. There are proper procedures in place that should mitigate all of these “risks.” Of course, in an industry where the barrier to entry is low and a lot of money changes hands, there will always be some bad actors.
Here’s what you should know about how a proper alternative lending transaction works:
- Your broker should be licensed.
The person you’re dealing with should be registered with the BC Financial Services Authority (BCFSA) as either a submortgage broker or a mortgage broker. You can check their registration status here:
BCFSA – Find a Mortgage Broker: https://www.bcfsa.ca/public-resources/mortgage-brokers/find-mortgage-broker - Compensation should be transparent.
Your broker is required to provide a document called Form 10, which both you and the broker must sign. It outlines any possible conflicts of interest and discloses all compensation. If your broker is being straightforward, what they tell you about fees should match what’s written in the Form 10. If there’s “no funny business,” there should be no hesitation in sharing this upfront. - Understand the fees.
For someone with poor credit or just slightly short on income for a traditional mortgage, a broker fee starting at 1% is common. For second mortgages, 3% to 4% is standard. Keep in mind that CMHC insurance also costs around 4% for buyers putting the minimum down payment. Whether that’s considered “expensive” depends on what you’re comparing it to. - Don’t pay upfront lender fees.
You should never be asked to pay lender or broker fees out of pocket before receiving your funds. Instead, these fees—along with legal costs—are typically deducted from the loan proceeds and disbursed through the lawyer’s office. The only exception might be an upfront cost for a property appraisal or a small deposit to cover legal expenses once your file is approved. This usually ranges from $1,000 to $1,500. - Your broker should have a long-term plan for you.
Your broker should care about your exit strategy—how you plan to move back to a traditional lender. They should be asking about your plan to pay off the high-interest loan and helping you build a roadmap to return to a regular lender or become debt-free altogether.
Final Thoughts
Alternative lending can be a powerful financial tool when used properly. It can provide short-term relief or bridge financing during times when traditional lenders say no. But it should never be a long-term solution without a plan. Work with someone who not only explains the process clearly, but also has your best interests in mind—and a strategy to get you back on track.
