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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