Mortgagee

What is a mortgagee?

A mortgagee is the moneylender in a mortgage relationship. When someone takes out a mortgage to finance their home, it is a mortgagee that offers them the money. The person receiving the money is known as the mortgagor.

A mortgagee is more often called a mortgage lender—that’s much easier to remember.

Mortgagee vs. mortgagor is a little confusing, because the -ee and -or suffixes seem backwards. If you think of the words employee and employer, we’d think of the employee as receiving the employment while the employer provides the employment.

In mortgages, those suffixes are reversed: the mortgagee offers the mortgage while the mortgagor receives it. But another way to think about it is that the mortgagor is providing payment and collateral (the house) to the mortgagee.

A mortgagee is different from other types of lenders. While a credit card company does loan you money every month, your credit card debt isn’t a mortgage. Mortgages are a specific type of loan that uses real estate as collateral.

Collateral means that if a mortgagor defaults on their payments, the mortgagee can repossess their home.

Mortgages are also somewhat more complex than credit cards or lines of credit. When someone takes out a mortgage, they can choose to pay their mortgagee fixed or fluctuating payments, on terms that they’re allowed to renegotiate every few years. To get an idea of what mortgage payments can look like, you can use an online mortgage calculator.

Types of mortgagees in Canada

In Canada, federal regulations divide mortgagees into types A and B.

A lenders

A lenders are the bread and butter of mortgage lending: major banks, credit unions and monoline lenders. These lenders focus on customers who have good credit scores and steady income. Most mortgages in Canada are through A lenders.

B lenders

B lenders (not to be confused with blenders, which liquefy food) offer mortgages to people who may not qualify for mortgages through the big banks.

B lenders may be willing to offer a mortgage to someone with a poor credit score or unreliable income. They normally also charge slightly higher interest rates and a fee. They must still meet the requirements of the federal government stress test, but have broader definitions of income and allow for somewhat higher debt ratios.

Unregulated or private lenders

There are plenty of ways to get a mortgage, including from companies or other entities that aren’t traditional mortgage lenders. These types of mortgages don’t necessarily follow federal or provincial regulations, like performing a stress test or requiring a standard down payment.

While securing a mortgage from an unregulated lender may be easier, anyone doing so would need to pay careful attention to the terms and costs of that mortgage.

Private lenders charge the highest rates and the highest fees, but their only qualification process is the appraisal of the property. The higher the loan-to-value ratio you require (the ratio of mortgage value to the home’s appraised value), the higher the rate.

No one should proceed with this type of financing without getting at least half a dozen quotes, as rates and fees vary a lot depending on the lender’s appetite for different types of homes and geography. Also, even the same private lender will offer different prices at different points in time, depending on how well capitalized they are.

Mortgagees and home insurance

Since mortgages are loans that use a home as collateral, most mortgagees want some assurance that the home is protected. If it were to be destroyed by fire or some other natural disaster, they could end up losing out on their investment. To that end, mortgagees require that mortgaged houses are protected by active home insurance policies.

In fact, home insurance policies in Canada include what’s known as the Standard Mortgage Clause. Mainly, this clause ensures that the mortgagee receives protection under the policy even if the policyholder does something that voids coverage—like intentionally damaging the home. Because of the Standard Mortgage Clause, insurance company may be reluctant to insure home with multiple mortgages. This is especially true if the mortgages are held by unregulated or private lenders.

The important points

• A mortgagee is an entity lending money for a mortgage (a mortgage lender).
• Mortgages are federally regulated in Canada, but unregulated mortgagees do exist.
• Mortgagees require any home being mortgaged to have an active home insurance policy.

Looking for another insurance definition? Look it up in The Insurance Glossary, home to dozens of easy-to-follow definitions for the most common insurance terms. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.