By means of Ian Bickis
Mortgage shopping doesn’t get much easier these days.
The long-awaited rate cuts that many have been anticipating this year continue to be postponed, while borrowers lost an aggressive interest rate advertiser after HSBC Canada was acquired by RBC.
The challenges make it all the more important to research and negotiate rates, mortgage experts say, though they also caution there’s more to focus on than just what seems like the cheapest option up front.
It’s not just real estate agents who emphasize the importance of negotiation; even RBC CEO Dave McKay points out that this is expected of them.
Refuting criticism that the bank’s takeover of HSBC Canada would reduce mortgage competition, he said the international bank’s low interest rates were a marketing ploy and that rates typically do not deviate from them, while other banks do.
“They haven’t negotiated with the customer a better rate than the posted rate, while all the other banks, including ourselves, have set a posted rate, and then we negotiate with the customer on that rate,” McKay said in an interview. interview.
But the loss of HSBC Canada does make it a bit more difficult to figure out what the lowest interest rates could be, says mortgage strategist Robert McLister.
“As soon as they left, the lowest nationally available uninsured variable rate rose 14 basis points,” he said. “Many people unintentionally pay too much when they don’t see the low advertised rates.”
Finding the absolute best rates you can get will take a lot of phone calls, he said, starting with a few brokers and lenders, along with checking comparison sites and getting written offers.
Once you know what the best options are, you can go with what you’ve already found, or go to a bank or other competitor to see if they match.
“It takes some legwork… you need competitive intelligence; that is your ammunition.”
It may be worth it, as taking a few points off a mortgage can really add up. Every 0.1 percentage point per $100,000 mortgage translates into about $480 in interest savings over five years on a 25-year amortization, he said.
Banks are well aware of how interest-rate sensitive shoppers are. McKay said customers will switch lenders as little as 0.05 percentage points.
“This is an incredibly competitive market,” he says.
While the loss of HSBC Canada means less competition for Canada’s banking sector, it likely won’t impact available rates, said Claire Célérier, an associate professor of finance at the University of Toronto’s Rotman School of Management.
She said customers are generally aware of the importance of mortgage interest rates, so banks will keep them attractive, at least for those who push. Banks expect to take advantage of fees and other routes, and possibly use the fees to entice notoriously loyal bank customers to switch institutions.
“The mortgage market is relatively competitive because it attracts new customers. You can switch banks if you can take out a mortgage at a lower rate.”
In the low interest rate years following the global financial crisis, Canadian banks also increased the amount of interest they added to the Bank of Canada rate to create their prime rate, from 1.5 percent to 2 percent, she noted.
The increase, ostensibly to help offset the effects of low interest rates, has remained at the two percent level even as rates rose, potentially giving banks an extra cushion to play with, Célérier said.
But as important as it is to push for a lower interest rate, borrowers should be wary of what seems like too high an interest rate, says Leah Zlatkin, a mortgage broker and LowestRates.ca expert.
“There are certain mortgages that are very specialized products that will give you insanely low rates, but you have to sell the property or die to get rid of that mortgage.”
Some lenders have mandatory standard insurance, or only charge an interest rate for a limited time, or charge high costs if you want to pay off the mortgage early.
“If you don’t really understand why you’re getting a low rate, or why that rate is so much lower than others, then you should really be asking those questions,” she said.
On the other hand, there are benefits you can look for besides the rates. Some lenders perform automatic appraisals, rather than charging one in person, which can save about $500, or offer the help of their in-house legal team, Zlatkin said.
Some lenders also offer cash back on rates, or will pay all costs if you switch to them, including legal fees, assessment fees and even redundancy fees.
To find the right offer, you also need to know what type of mortgage you’re looking for, which can be a challenge given all the uncertainty surrounding interest rates.
Following last week’s higher-than-expected inflation from the US, BMO canceled one of Canada’s expected rate cuts this year, and now expects three cuts from the Bank of Canada and two from the US Federal Reserve.
The near-term uncertainty, combined with continued confidence that rates will fall in the coming years, means the three-year rate is still the best choice overall, Zlatkin said.
An adjustable-rate mortgage may make sense for those who are incredibly optimistic that inflation and interest rates will fall sharply, but overall it’s a tough gamble, she said.
“The spread between a variable and a fixed interest rate is simply too high at the moment for me to understand that theory.”
Both McLister and Zlatkin also noted that it’s good to consider those who help you find a rate.
Zlatkin said it’s better to be honest and transparent about intentions so her team doesn’t waste too much time, while McLister noted that it can often make sense to go with a slightly higher rate if you trust the broker and they are helpful are. .
“Sometimes it can save you more in the long run if you pay a little more for good advice.”
This report by The Canadian Press was first published April 18, 2024.