The Quick Close Shuffle

Quick-close-mortgage "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?

  1. I think that these quick close rates will only be temporary.
    Spreads used to be around 1.2-1.3% over bond right now spreads are at about 2.6%.
    no one wants to “officially” lower their rates as the rest of the players would have to follow suit.
    So Lenders are playing games with quick close and special rate sales in the hopes that they can drive business without triggering rate competition among the lenders.

  2. Hello CMT.
    Lenders do not have a lot of margin right now so I would question if quick closes are really temporary.
    If they are working as stated then it would seem they might continue indefinitely.
    Great site by the way!

  3. Interesting topic – we’re not in the industry; quite the contrary, we are building a new home with a major homebuilder in the Toronto area and read this site daily to keep on top of what we should expect when we get closer to closing-time (May ’09). Our current ‘builder deal’ w/ RBC locks us in at 1.25% under posted rates for a closed mortgage (anywhere b/w 1 and 5 yr terms). The lock-in applies to the lowest rate between when we signed our agreement (Feb ’08) and closing (May ’09). I think this is fanstastic – our last house we bought in ’02 and moved in in ’03 and the builder deal got us 4.75% for 5 years, which at closing time could not be beat by any broker with any quick-close specials. Of course, that’s because rates dipped for a while and then went up again before we closed. If rates don’t go up drastically this time, we’ll be looking for a broker ourselves when closing time draws near to get the best deal possible :)

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