Not the Way to Advertise Rates

Over the weekend I came across this headline.

53000-savings

It was based on Ratehub.ca’s Digital Money Trends release, which we covered this week. That report yielded some useful new data, as noted. Unfortunately, it dropped the ball in one key claim.

The report attempts to show how much Canadians would have saved by choosing a RateHub rate, versus the banks’ posted rate over the past five years.

Posted-rate-versus-discount-rates

 

In our story Wednesday, we purposely ignored this stat. Comparing savings between discount and posted rates is like telling vacationers how much Expedia would have saved them versus hotel rack rates, or telling car buyers how much TrueCar would have saved them versus MSRP.

For any mortgage company to compare its discounted rates to bank posted rates (which almost no one pays anymore) is, in this author’s view, distorted and disingenuous—to put it politely.

It’s a shame because the report could have compared Ratehub (or any rate comparison site) to average rates, or the bank’s special offer rates, and still made a very valid point. It didn’t have to resort to the 1995 playbook on bank challenger rate marketing. And, by the way, if you’re a broker or lender, neither should you.

Any qualified homeowner who’s spent half an hour researching mortgages online knows that paying posted rates is ludicrous. Even the banks themselves would tell you how uncommon it is for their own borrowers to pay posted rates.

If you want to make a point about how great your rates are, compare them to a reasonable benchmark. MortgageDashboard.ca shows the average broker rates being advertised by Canada’s biggest brokerage firms. Use that, or something more akin to what borrowers actually pay. Don’t discredit yourself by using the “my discounted versus your posted” trick.

Sidebar: Interest rates are only one component of total borrowing cost. This story isn’t meant to imply otherwise. And for full disclosure, let it be known that this author also owns a rate comparison site.

      1. Two totally separate companies. Their may be corporate relationships but NOT the same companies and completely separate staffs.

        1. Who is kidding who?

          Ratehub Inc. is a registered mortgage brokerage.

          http://www5.fsco.gov.on.ca/mbsweblist/ShowLicence.aspx?12530~

          It says right on the Canwise website that “CanWise Financial is owned and operated by RateHub Inc.”

          Sorry. I don’t buy for a minute that they are run totally separately and are not the same company. I believe Ratehub started Canwise because there is more money in mortgages than in leads and I believe it runs Ratehub.ca with Canwise’s best interests in mind.

  1. 100% right Rob, what we need in rate advertising is greater accuracy, more product details, truthfulness and timeliness in the face of rate changes. The only thing I could say in RateHub’s defense is that RateHub is not in the brokerage business day in and day out like we are. If you visit bank websites you will see posted rates however we all know those are almost never the rates that a client ends up with.

  2. As always some great discussion, I wanted to chime in on behalf of RateHub.

    When we were writing the report our team had many conversations about the best way to represent this number. We settled on “difference” over “savings” because we agree consumers would almost never pay the posted rate even though they regularly see posted rates online. We know consumers still see the posted rates because as found in the report, top bank brands see 15x the monthly online searches as top broker brands.

    The statistic in question is meant to show the importance of comparing mortgage rates online. Due to the prevalence of discounting in the mortgage space, posted rates found on banks’ websites don’t give an accurate picture of market rates and therefore consumers have reason to look to rate comparison sites.

    1. Appreciate you sharing your perspective Alyssa. It’s so easy for the “difference” to be misinterpreted as “savings,” as evidenced by the fact that a seasoned journalist put out the headline “Shop mortgage rates and save more than $53,000.” Anticipating the possibility of misunderstanding, it’s probably best to steer clear of posted rate references when making a case for discounted rates. -r.

  3. I thought a good mortgage was suppose to be about more than rate in the first place…taking into consideration things like prepayment options and prepayment penalties that could either save you thousands or cost you thousands over the life of your mortgage? Or is that just “cocktail party chatter”?

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