The “You’re The Boss” Mortgage

coast-capital-savingsCoast Capital is one spunky lender.

Folks at Coast aren’t content with being the second largest credit union in Canada. They want to be the first. So, the BC-based company has been challenging big banks head on.

Its strategy has primarily been two-pronged: a) advertise some of the most competitive mortgage rates in BC; and, b) develop innovative products.

Coast’s new “You’re the Boss” mortgage is case in point.

The “You’re the Boss” mortgage comes with:

  • 30% lump-sum pre-payment privileges
    • The most of any closed mortgage in Canada (Here’s how Coast’s pre-payments compare to the banks.)
  • A “Save and Take” feature
    • This lets people re-borrow the money they’ve used to pre-pay their mortgage (subject to a $500 minimum)
    • Customers can check their available re-borrowing limit online
    • Clients can make a withdrawal by phoning Coast’s call center. The money is put in the customer’s account the next business day.
    • BMO has something similar called the “Mortgage Cash Account” but BMO’s minimum re-borrowing amount is $2500 vs. Coast Capital’s $500
  • A “Half & Half” rate option
    • This sets the rate at the mid-point between the current variable and fixed rates, thus reducing risk compared to a straight variable mortgage
    • Coast says this feature appeals to the 47% of borrowers who are “unsure about whether to purchase a fixed or variable rate.”*
    • Customers can instead opt for a regular 5-year fixed or variable rate if they choose
  • 100% payment top-up privileges
    • Allows customers to make up to double their regular payments
    • Clients must phone in to make these extra payments (it can’t be done online)

Big pre-payment allowances are swell, but remember that only 12% of people actually made lump-sum pre-payments last year, according to CAAMP.

Norm Krannitz, Coasts’s VP, Treasury, says “We want to get that 12% higher. We’ve made pre-paying a mortgage more compelling by allowing access to those funds later on.”

Save-and-Take-PaymentsCoast’s new Save and Take feature works sort of like a readvanceable mortgage. The difference is that readvanceable mortgages let you re-borrow all of your principal payments. The Save and Take feature only lets you re-borrow principal that has been pre-paid over and above normal scheduled payments.

Krannitz says that’s because Coast is “not trying to encourage more borrowing.” But, some people will still prefer a regular readvanceable so they can access all of their available equity.

In researching this product Coast found that 40% of local mortgage holders set aside funds for emergencies rather than using that money to pay down their mortgage. Allowing re-borrowing keeps people liquid and makes pre-payments more appealing.

Other notables of the “You’re the Boss” mortgage:

  • Maximum loan-to-value: 80%
  • Property Types: Owner-occupied residences only
  • Term: 5-year fixed, 5-year variable, or Half & Half (part fixed/part variable)
  • Where to get it: Coast branches, Coast mortgage specialists and approved brokers

Not all lenders can offer this kind of mortgage. The re-borrowing feature makes it very hard to securitize and more complicated to fund. For those reasons, mortgages like this generally have to be kept on a lender’s balance sheet (which Coast does). That makes it harder for non-deposit-taking lenders to compete with this kind of product, apart from competing on price.

***********

Sidebar: Coast has made known its interest in potentially going national someday, once federal rules permit it. Krannitz says, “We’re quite happy that legislation is there to allow us to expand nationally. We’ve been a big proponent for getting (that) legislation put into place.”

Krannitz notes that Coast must do a lot of evaluation first. Competing in new markets and being federally regulated brings major challenges. Hence, no decisions on a national rollout will come anytime soon.

* Survey Details: Coast Capital’s above-noted research on pre-payments and fixed/variable rate intentions comes from a March survey. The survey included 1,154 respondents across its market area.

Coast Capital serves British Columbia and has 425,000 members, 50 branches, and $12.9 billion in assets.


By Robert McLister

  1. I think that B.C., especially the Vancouver area, is a great place to roll out a mortgage with such a huge prepayment facility considering that a shack over there costs close to a million. For those individuals who want to prepay their mortgage aggressively, this limit of this mortgage gives them a slight edge over ING. But let’s be real: how many people actually use ING’s 25% prepayment facility to its fullest? Very few. What I really like is the Save and Take feature. It provides borrowers with a bit more liquidity whenever they need it without them having to overextend themselves. Seems like this option is geared towards periodic borrowing as oppose to constantly capitalizing on your equity.
    I really hope they go national one day and raise the stakes. I was with Citizens Bank (part of Vancity) before they folded and was really impressed with the products and quality of service. Something tells me this won’t happen for a while, if ever at all. Rob, do they deal with the broker channel?

  2. Hi Lior, Yes indeed, they do have a broker channel. However, I’m not sure to what extent they’re taking on new brokers. Last I heard they were accepting new brokers in specific geographical areas only, but they’d be better to comment on that. Cheers, Rob

  3. “Folks at Coast aren’t content with being the second largest credit union in Canada. They want to be the first.”
    Good luck with that! Desjardins has over 170 billion in assets. But since Coast’s numbers are only for BC, this goal might be attainable (in time) should they go national.

  4. How much assets are in Desjardins’ actual credit union operations? I’m wondering how much Desjardins would have if you stripped out their subsidiaries in insurance, trust, industrial and commercial investment, funds management, and securities brokerage.

  5. The C.U’s in Canada have been amalgamating for years. If they are allowed to go national one day, further growth by amalgamation is certain.
    Its interesting to me how Coast Capital Savings is aggressive in their mortgage rate offerings and yet other large C.U.’s like SERVUS in Alberta are not interested in going after business at all. They won’t even knock 10pts off their 5yr variable mortgages and still offer them at P+0. Better yet, some small C.U’s are at P+1 for their variable rate mortgages.
    I guess that’s good if your shopping your limited choices in the middle of nowhere Canada but in most markets, the C.U.’s are not rate competitive by a wide margin.

  6. I’m curious as to what you consider “credit union operations”.
    Considering its org chart, the correct calculation would be quite a challenge. Through its latest financial reporting, this is what I can make out:
    Residential mortgages: $72billion
    Consumer loans including credit cards : $17
    Commercial and Government loans: $27
    Deposits
    Personal of all kind:$77
    Commercial:$25
    Government:$9
    How do you reconcile it all to get to $170. You probably need to be a CFO (which I’m not). Still, the numbers are impressive.

  7. I’m a happy Coast capital customer (for banking only, I have no need of their mortgage products as last year they were totally not competitive on a plain LOC mortgage..)
    They are also very very aggressive with their banking products, such as:
    – no fee high interest savings currently earning 1.35% from the first dollar, interest paid monthly, for personal or business accounts. The cash is available 24/7 but at least you get 1.35% on it.
    – No fee chequing account.
    In the end I earn a few dozen dollars each month for banking with them. Better than the big banks where you pay to bank with them.
    The fees on their business accounts are also cheap cheap cheap when compared to other banks, provided you do not need to do banking outside the lower mainland or Vancouver Island. (other than plain ATM withdrawals..)
    If they did go national, watch out the big banks! Coast is very aggressive and has great hours..

  8. DUCA credit union has prime on a line of credit. Best anywhere I think. When do you guys thing the banks will get back to prime on LOCs??

  9. I was only speaking at the retail branch level but your post that a broker can access P-.50% from C.U. like SERVUS for a VRM when all banks are now at P-.75% and others at p-.85% comfirms what I was saying; unlike Coast Capital, many C.U`s are not rate competitive.

  10. One argument you tend to hear a lot from C.U. is that even if the rate does not seem as good as banks, the member’s dividend will compensate. Any sense if that is remotely true?

  11. It may be better to ask the banks. The fact they’re taking hits on their margins by offering more and more clients discretionary rates on mortgages means that other services would have to compensate for the losses. I think that some banks offer a HELOC at prime. National Bank does under their Engineer program. Not sure, though.

  12. Their are many variables when it comes to dividends like who the C.U. is, how well they did, the level of business you do with them, the common shares you own and if it was a cash or share dividend payout. Envision (3rd largest C.U. in B.C. declared a dividend last year averaging a whopping $2 per member. Servus in AB. was much higher about $100 or so but seems much less competitive on mortgage/loan rates, account service charges or insurance.
    Even 10 bps on a mortgage alone adds up to a lot over 25-30 years and probably much more than any offsetting dividends you might accumulate.

  13. The half and half rate sounds interesting with respect to those that are on the fence (fixed vs floating). My apologies if this is a silly question but is the Half and Half product offered by Coast Cap the same as a true hybrid (50% fixed and 50% floating)? I suspect it is and they have just come up with and interesting way to communicate it. “When the rate goes up or down your rate changes 1/2 of what the prime rate change is”. This product may produce a truce on home front regarding the ongoing debate of what is a tolerable amount of risk. I am currently 6 months into a 3yr convertable var @-.5(=%2.5%) but the Half and Half @2.8% for 5 years is looking very tempting. Thoughts appreciated from anyone else considering this new product?

  14. Dear L.W.E.R.A.P.,
    LOL.
    There are a lot of those partners out there!
    Not only is your question not silly, but it’s a testament to how creative Coast’s marketing department is.
    They’ve taken a regular hybrid mortgage, described the interest calculation in a more appealing fashion, and come up with the “half and half” mortgage. In actuality, it’s similar to a regular 50/50 mortgage except that Coast is a bit more generous because they round down the interest rate. (i.e. Whereas 3.45% + 2.20%/2 = 2.825%, Coast gives you 2.80%.)
    You might want to chat with a mortgage advisor and ask him/her to do some rate simulations based on future rate expectations. If you compare the hybrid in this manner against a standalone variable or standalone fixed, you’ll get a good sense for the potential interest cost differences of each.
    Cheers,
    Rob

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