Where the “Deals” Are

mortgage-shoppingAs rate comparison websites evolve, something interesting will happen. Lenders and brokers will realize how easy it is to put special offers in front of thousands of eyeballs.

As new competitors see this, they’ll join the online fray and rate discounts will slowly improve…one basis point at a time.

The best deals won’t always come from one single lender. At any given time, lenders anxious to place money will advertise aggressive specials, fill their pipeline with applications, pull out of the market and let someone else take the lead.

This isn’t much different from how it works today, except that Internet-focused lenders will get their fill a lot quicker than they do through current distribution models (because rate sites will give them more exposure).

But these changes will take time to set in. If you’re looking for the lowest advertised rates today, credit unions and online mortgage brokers are clearly the market leaders. Here’s a quick look at where the national market stands for well-qualified borrowers:

6-month Fixed:  There aren’t many 6-month specials out there unless you live in Manitoba where Cambrian, Carpathia and Crosstown Credit Unions feature 2.19% (an exceptional rate that’s equivalent to prime – 0.81%).

1-year Fixed:  Rates of 2.39% (or slightly less) are available through a handful of credit unions like First Calgary (Calgary, AB) and Assiniboine (Winnipeg and Northern Manitoba), and also through various brokers online.

2-year fixed:  Investors Group has the best widely available special at 2.35%.

3-year Fixed:  Scotiabank, Canadiana Financial and a slew of credit unions are at 2.79%, while at handful of online brokers are advertising 2.69%.

4-year Fixed:  Dozens of credit unions and brokers are at 2.89%. At the moment, this term has the least amount of price competition of any in the market.

mortgage-penalty-calculator5-year Fixed: While most brick and mortar institutions advertise 3.09% or more, the real market is at 2.99% or less. Numerous brokers are advertising 2.89%, but some of these rates are restricted and/or for “quick close” mortgages only.

10-year Fixed: 3.89% is the worst rate you can expect for a full-feature decade-long term. Online brokers are routinely advertising 3.79%-3.84%.

Variable:  Once again, Manitoba credit unions (Assiniboine, Crosstown, Caisse Financial Group and Steinbach) dominate the variable-rate market. They’re all at prime – 0.50%. In the rest of the country, most bank reps and brokers have access to prime – 0.35%, with a few brokers at prime – 0.40%.

HELOC:  Banks, credit unions and brokers are all huddled around prime + 0.50% (i.e., 3.50%). A few small and local credit unions, like iNova (Halifax, NS) advertise 3.25%.

Side Note: This survey only reviews rates. It says nothing about the quality of the mortgages themselves, your ability to qualify or the support you can expect with a given rate. Keep in mind, most deeply discounted rates come with little service or mortgage planning. If you want someone who takes time to carefully review your best alternatives and warn you of lender restrictions, it is rational to pay 5-10 basis points extra for that service (2.99% instead of 2.89% for example). That difference is chicken feed if you need advice, because bad mortgage selection will balloon your cost of borrowing after closing.

Rob McLister, CMT

  1. The idea that “the majority of people need proper mortgage management” is interesting. I wonder if the majority of Canadians really need someone to “manage” a loan for them.
    I mean really: its a loan. Get the best rate, make sure there are ample prepayment privileges, make sure the break penalty is understood and we’re done. Sure, there can be a debate about what the best term and product is; but its just a discussion,no one really can see the future. I know some brokers think they know those answers but if they really had a pipeline into the future they would be long retired on their own islands.
    So what is there to manage, what is there to plan? Make sure the contract is sound and pay the loan off as fast as you can.
    So is that advice worth paying 3.09% versus 2.84%? Eventually the public will make their choice clear.

  2. I think that oversimplifies the mortgage process. Choosing an appropriate term or product isn’t about guessing what will happen in the future. Brokers who don’t understand that are little more an order takers. And that is fine. I have nothing against rate peddlers. I just think you have to understand what you’re giving up when you deal with an online discounter.

  3. Need to agree with Ron on this issue. Given the choices of lenders and respective products on the market, borrowers don’t need to “give up” much of anything and still get the best prevailing rate on a specific term. Furthermore, Ron makes a good point that IMHO is one of the biggest myths perpetuated by mortgage pros (both bankers and brokers), in that there really is not much planning and managing required for the average borrower. Our job is really simple….find lenders with reasonable prepayment terms, exit penalties, payment options, and then further distill those lenders down to who offers the best rate for the selected term.
    I could never understand what those “pros” selling the “pay your mortgage off faster” premise are actually selling….reality is once a borrower has a loan, they can exercise three options to reduce interest costs and amortization…all 3 of which work better @ 2.89% vs 3.09%.

  4. Except you cannot give any details of what the public is “giving up” because you don’t know the level of advice and service that the “peddlers” are giving.
    You imply that you have the ability to determine the “appropiate term or product” for clients but again no details as to how you acheive this marvelous, consistant perfection of advice.
    As a dedicated “peddler” I am consistantly told by other brokers that clients are happy to pay (in the form of higher rates) for brilliant advice from great mortgage brokers.
    Okay, so why not ask them: offer two rates to your clients. #1 2.84% 5 – year fixed, discounted commissions, just fill out an application on-line and all the broker will do is process it and exchange emails till it funds or pay 2.99% 5 – year fixed and meet the broker, do terrific analysis, get sage advice and be provided with annual review meetings, yada, yada.
    Let’s see which offer the public wants.
    Oh sorry, I can hear the answer now: the public does not know how badly they need the sage advice so we’ll just continue as we have at the higher rates.
    I will stick to peddling.

  5. I think you missed his point entirely Ron.
    He’s talking about giving the consumer a professional hand to hold through the Mortgage process.Piece of mind knowing he/she has a trusted broker looking out for them, with the expertise to guide them.You know that thing we call relationship building?..sticking around,staying in constant contact throughout the term…so when renewal time comes along,giving the client the confidence with that discussion you mentioned that they are getting the right deal..As opposed to signing the client,taking your commissions and hitting the road never to be seen again.
    Mortgage/Client management is what the Banks do everyday.
    Call it what you like, but it works for them, and if our industry to a person practiced it we’d be a lot further along the road in retaining our clients and increasing our market share.

  6. “I am consistantly told by other brokers that clients are happy to pay (in the form of higher rates) for brilliant advice from great mortgage brokers”… sounds like the O’Leary approach, take a higher rate cause I’m gonna give you advice.. hogwash… there is an increasing number of rate concious borrowers who don’t care about the advice and at the end of the day will jump ship for a better rate… and you’re telling me that if you sat down with clients, and they were buying a house they really shouldn’t (and you knew in your gut would be stretching them, you would given then “advice” and tell them to look elsewhere… BS! You would try to squeeze them into that house just like the peddler…

  7. I saw this in an email from GoMax today:
    “Focusing on rate may generate short term gains…Instead, show your clients how they can develop a plan that will save them tens of thousands of dollars over the life of their mortgage.”
    Are you saying that such plans do not exist?

  8. Yes, they do indeed: utilize your prepayment abilities on a disciplined, auto-scheduled basis………….. okay now pay me the extra 15 bps.

  9. That’s fine Sean, just have the guts to offer the alternative to all of your clients, offer them the chance to make the choice between “peace of mind… constant contact….. renewal discussion …. hand holding…. relationship building” or 15 bps better rate and less hand holding. If you are so certain of the result you should give it a try.
    Likely you already do it, after all you’re the “trusted broker” and someone who deserves trust would always offer full disclosure and provide lower rates options for less commission.

  10. “Sean said in reply to Ron Butler…
    I think you missed his point entirely Ron.”
    Ron doesn’t miss anything!

  11. Not all mortgage rates are created equal. Mortgages can have vary with the terms and conditions, in addition to the interest rate. Each mortgage caters to an individual’s particular needs. If you want to find the best mortgage for you, you need to compare all of your options.Closed’ mortgages have lower rates when compared to their ‘open’ counter parts, and are more popular. Closed mortgages can come in fixed and variable form, but place a restriction on the amount of principal you can pay down each year. If you pay off the entire principal in a closed mortgage before the set term, you will face a penalty, such as a 3-month interest charge.
    ‘Open’ mortgages on the other hand, allow you to pay off your entire mortgage balance at any time throughout the term. The drawback is that you pay a premium for that option. People opt for open mortgages if they are planning to move in the short future, or if they are expecting a lump sum of money through an inheritance or bonus, that would allow them to pay off their entire mortgage.

  12. Consumers need websites to shop.
    Trust me, if the banks could sell mortgages without sales people they would have fired sales people long ago.
    Another thing we shouldn’t worry about is price wars. Brokers are always in the best position to win those battles, as opposed to dedicated sales people only selling one lender’s products.

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