IG’s 1.99%. Some Odds of Note

Investors-GroupInvestors Group’s 1.99% variable-rate special is already making life harder for competitors. Clients are contacting their bankers and brokers and asking, “Is this mortgage right for me?” and “Can you match this rate?”

Mortgage advisers are actively, and in many cases rightfully, selling against this mortgage. The fine print speaks for itself, albeit it’s still a spectacular deal.

We asked ourselves (and answered ourselves) the following questions.

What is the probability that:

  • Financial Minister Joe Oliver puts the kibosh on this rate? <5%
  • Investors Group took a page out of BMO’s rate marketing playbook? 99%
  • a major bank will publicly match prime – 1.01% this year on a variable rate? <5%
  • this promotion will cause abnormally high cancellation rates (at other lenders)? >95%
  • you’ll be cross-sold other products if you get this mortgage? >95%
  • you’ll care about IG cross-selling you if you get this mortgage? <50%
  • you won’t get the best rate in the market if you lock in this variable rate? >90%
  • you’ll curse IG’s name if you take this rate and want to refinance or port/increase before maturity? >95%
  • you can switch to another lender at maturity without legal costs? <25%
  • Investors Group depletes its funding for this promo, faster than expected? >80%
  1. All this will now do is ensure I will sign every single client to an exclusivity agreement. Is that good for the industry? Kudos to IG for this – CFRB, CBC etc picked up on it and of course the phone is ringing off the proverbial hook (but not in the right way).
    Silly that other monolines couldn’t come up with something like this – even at 30bps commission. I couldn’t buy this rate down even if I wanted to.

  2. “you won’t get the best rate in the market if you lock in this variable rate? >90%”
    I do not believe there will be better rate than this in the next few years. For this question the odd should be <5%.
    "you can switch to another lender at maturity without legal costs? <25%"
    The $500 legal cost is nothing when compare to the saving you get over three years.

  3. It’s a great offer on a very restrictive product. If the clients want 3 – year Variable and are absolutely dead certain they will never need to do anything with the mortgage or the house for 3 years, I say: take it.
    There have already been some reports of conversion issues: “the earliest we can get to you is about 3 days” or “call us back in 2 or 3 days” and the reason for this is interesting; although IG has a ton of people you can talk to right across Canada they have relatively far fewer people authorized to take mortgage applications.
    An interesting development is that the IG website may be FSCO non-compliant. Although the correct license numbers are properly published on the site, when you type your location into “find an advisor” it gives a huge list depending on the location. My staff tested the first 15 names that appeared on the Toronto list of advisors and none of them were licensed with FSCO for mortgages.
    Possibly if you call one of those names they immediately refer you to a mortgage person but it’s interesting that most of the folks on the list are not registered mortgage agents or brokers.

  4. How about all the pending purchase deals that IG screws up by having “non-licensed” broker’s assist the file and THEN after they mess up they’ll cross-sell you a bunch of wrap accounts that under-perform with sky-high MER’s that also have leverage loans tied to them? YAY!!

  5. Correct me if I’m wrong, but did Manulife One not offer an industry beating rate several years ago, only to subsequently re-price their “prime”? If they do raise their prime, their clients can’t go anywhere. Not saying this will happen, but its a possibility.
    I fail to see how any other lender will come anywhere close to this rate, simply because it doesn’t make sense. They’re trying to attract extremely price-sensitive clients in an attempt to cross-sell extremely overpriced funds. Maybe thats the point, but it seems like a huge gamble and one that has never paid off before.

  6. “you won’t get the best rate in the market if you lock in this variable rate? >90%”
    What exactly does this mean? Is the author saying IG will raise their rate once this promo is done, and everyone who signed on is going to regret it? Or do you mean rates everywhere are expected to drop enough that 1.99% won’t be the lowest?

  7. I got a promotional 2 year locked in rate at 2.35% from Investors Group when that was untouchable at the time. I have been happy with it. It was a somewhat complicated home purchase and they handled it just fine.
    Do I own any of their other products? No way. It is a buyer beware, and intended to cross sell you products. Doesn’t mean you have to though.
    I tried to renew early into this one but was not able to as it is a promotion to new clients only.
    Great website buy the way.
    Jeff

  8. With most lenders, if you decide to go with the variable rate mortgage, they will give you the option to convert it to a fixed rate product at anytime. What the author means is that if you do decide to lock in your rate, the rate they give you is likely going to be quite a bit higher than market rates on the same product.

  9. It means; should you wish to convert to a fixed rate within the three years, they will not be offereing the best or lowest fixed rates. Since you cannot get out of this promo rate, either you keep following prime’s increase or you lock in one of their available fixed rates which will be higher than the average.

  10. grasping at straws here…not much to sell against if you can secure an offer like this…call a spade a spade.

  11. CURIOUS? Why some mortgage “people”(only a few fortunately) feel hell bent on bashing a new lender’s product solely because we as brokers dont have access to it. ( the negatives are couched on how terrible the product is for the consumer, but..really?) If this were a paying co-operating lender,the negative comments would surely not be so defensive ( offensive) I welcome new products and this WOULD be a GREAT product for some. Am I threatened? Not anymore than by the RBC branch who offered my client 2.75%, fixed 5 year last week, a week before closing date. I cant get every deal but I can get a thank you from every client, which I have the potential to convert in to a minimum of 2 referrals. (ps I dont always win, but in this case, the client was so pi….. with RBC for waiting until the end to negotiate good rates, he went ahead with my approval- just lucky on this one!)An informative discussion of the pros and cons of any (new or otherwise)product is helpful but let’s cut this product / lender bashing – consumers are smarter than this !

  12. Hi Moneyman: This mortgage is portable. There are no blends and increases however.
    Hi AW & Robin: We’re told by the company that conversions from variable to fixed are done at published rates. In our experience IG’ published rates aren’t so hot. This is only a factor when locking in. Most people likely won’t convert but for those who do it’s another consideration.

  13. Make no mistake – this seems to be an unbeatable deal from a price perspective. That said, its so far out-of-market that naturally there is going to be scepticism among anyone within the industry.

  14. Has there been any clarity on what the penalty is in the event of a sale? Is it a standard three month interest penalty or is there a reinvestment fee or something similar as well?

  15. Hi Rob,
    Just a point of order on your writeup on ratespy, you say the following:
    “Compared to today’s average discounted variable at prime

  16. If you go to IG’s website it outlines all these details along with confirming that the payment is based on a 3 year posted rate at 3.75 so for cashflow purposes, some may like it, some may not. Every home owner is different and this may work for some but not all.

  17. I can see this mortgage being very popular with seniors and those looking to exit their ’50s’ and have small mortgages. They aren’t likely to want to want “rate shop” before the term’s maturity and this mortgage does allow you to get out of the mortgage if you sell your home (the only way, I believe).
    I think it’s a “win win”. I always forget about insurance companies being in the mortgage business, but it totally makes sense. I would’ve thought, though, they were in the mortgage broker channel. Does that mean the only way to get this mortgage would be through an Investors Group “financial consultant” (who are paid on commission)?
    Cheers,
    Doug

  18. Hi VB,
    That’s an noteworthy point and it’s good you brought it up.
    In our writing, we quote what qualified borrowers actually see and get from competitive providers. When estimating an “average discounted rate,” that number will differ from the “average rate.”
    RateSpy (where you took that quote from) defines

  19. Interestingly enough this mortgage is priced less than their crappy money-losing in-house mutual funds. It is registered as collateral charge which means if the consumer wants to move their mortgage to another lender once the promotional rate expires, the entire mortgage has to get re-done. And given that IG’s other mortgage rates are priced significantly higher than what’s available in the marketplace (i.e. 5-year variable at prime – .25%), this will put the consumer at a disadvantage if the renewal offer is not competitive or if the consumer chooses to convert to a fixed rate at a later point. At this price point, though, there is plenty of headroom.
    Also note that the payments are based on their 3-year fixed posted rate of 3.75%. No good for someone who is looking for better cash flow through the lower rate. To add to what Tyler asked, there is no mention on the website of what the prepayment penalties are which is suspicious as most lenders will tell you what type of penalty applies to a particular mortgage (the way it is calculated is a different story). That said, kudos to them for jolting the market. While this product is not for everybody, consumers who understand the implications of changing anything for 3 years will definitely save money.

  20. I found out that the LTV has to be 70% and the variable has a 15+15 prepayment option and a standard 3 month interest penalty.

  21. I have been with Investors Group for 14 years. I understand where some of the sentiment is coming from regarding our funds but IG has changed for the better. Especially over the past 5 years. Lower MERs, access to more products and full financial planning. Helping a client pay off their mortgage quicker using financial planning strategies is more valuable than saving them 0.1% on their rate in my humble opinion. This rate will only last about a month, but there is a commitment that IG will become a much bigger player in the mortgage world moving forward. This promo rate is not going to be a one off.

  22. Two questions:
    Standard 3mth penalty!
    What if this Penalty is: A 3mth interest Penalty… that has been based on the difference between some obscure bond yield less their base rate or some sort of calculation and then use 3mths worth of interest at that calculated rate?
    See what I am getting at! What is the actual wording for calculating the penalty?
    Next question:
    Do they reference one of the better known Chartered Banks Prime Rate (currently 3%) or do they call their rate a ‘Base rate’ that might be related to Prime or something similar, that can change whenever they want. Remember in the past when ScotiaBank priced off their ‘Base rate’ which to the uninformed might have meant the same as the Prime rate. That rate at times was 1% over Prime, but you would still got Base less 1.01%…
    The details are in the fine print that I would like to see before I am able to comment. Anyone got a copy?

  23. Reading through the comments, the theme is the same…..at the end of the day there is an overpriced product that will be (attempted to be) sold to these mortgage takers, thereby likely wiping out any cash flow advantages seen.
    Three years to work over a client and cross sell.
    This would be a great deal if we could see into the future like a crystal ball. Life is messy, and the terms of this mortgage could make it a lot messier.

  24. To your last question, if you read IG website it clearly states base rates and mortgage prime rates. So in theory this could not be based on the actually BoC prime rate but I think it still is as the rate has stayed the same since Sept, 2010 which is when the last time pprime has changed. As to the penalties I have tried to contact IG but have had no one to answer my questions.
    P.S Rob love the site lots of good dialogue and information

  25. Rob just to point out this product is available as an adjustable rate product that can fluctuate, and does at the first of each month. I would alter your fine print article as it states that the payment is based on 3.75% that is one of 2 different products just FYI

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