"Quick close" specials have become increasingly commonplace in the Canadian mortgage market. A quick close special is a discounted rate that applies if your mortgage is closing in the next 30-45 days.
By way of example, a lender's best 5-year fixed rates might be as follows:
- 5.49% with a 120-day rate hold
- 5.39% with a 60-day rate hold
- 5.19% with a 30-day rate hold
Lenders do this because it costs less to hedge a rate for a shorter period of time. Plus, there is a higher likelihood of a mortgage closing if the client applies within 30-days of funding. Lenders are therefore actively pursuing quick-close borrowers with their very best rates.
This is becoming more and more commonplace. We're even seeing some lenders pay brokers more for referring quick close applicants. The funny thing is that many lenders restrict quick-close rate specials only to new borrowers. So people who committed to the lender 3-4 months ago don't benefit from the lender's lowest rates.
As far as implications are concerned, it's not unreasonable to expect that borrowers will increasingly take long-term rate locks, only to switch to another lender within 30-days of closing–to get a lower rate. Closing ratios for 120-day pre-approvals may therefore decline, and the cost to lenders might therefore go up.
What will lenders do to fight this? If you're in the industry we'd love to hear what you think.
Perhaps lenders will be less agressive in offering long-term rate holds? Or maybe they'll penalize brokers more for low closing ratios? Or maybe they'll eventually find a way to hold borrowers to their long-range rate hold commitments?