Getting the Best Mortgage Rate

You know those people .. the ones that boast about how they got this great mortgage rate and you feel like a schmuck!

Well, the Bank of Canada conducted an extensive study on mortgage discounting and Canadian Mortgage Trends summarized their conclusions below.

The Canadians who get the best mortgage rates are those who:

Bargain

• Banks don’t offer their best rates up front.  They give better deals to skilled negotiators and well-informed borrowers.

Have larger mortgages

• “…..since few negotiate the renewal of their mortgage … (this) provides lenders with an incentive to attract consumers with larger loans who have large outstanding balances at the time of renewal.”

Use a Broker

• Report states that mortgage brokers lower the “search costs”of getting multiple quotes that translate into lower rates
• “Over the full sample the average impact of a mortgage broker is to reduce rates by 17.5 basis points.”  That’s $1,670 of interest savings on a typical $200,000 mortgage over a 5 year period.
• Bank “mortgage specialists offer convenience to consumers, although they do not reduce search costs.  This is because they work for one lender only.”

Do significant non-mortgage business with a lender

• “Branch managers have an incentive to offer large discounts to consumers ..  that are, or will be, more profitable to the bank”

Have more equity

• Those who put the minimum down payment of 5% “pay higher rates than other borrowers – about 12 basis points more” than those with a loan to value below 85%

Are new clients

• ” …new clients receive larger discounts than existing clients, on the order of 10 basis points.”

Use smaller lenders

• “We conclude that the larger a bank’s market share, the higher are the rates that it can charge to borrowers”
• “….Borrowers who are new clients at one of the Big 8 banks receive less of a discounts than borrowers who are new clients elsewhere.”

Are financially capable

• ” …..  poorer borrowers may face greater levels of price discrimination when bargaining in person at the branch than they do when transacting through a broker.”

Have better credit

• “Financial institutions …  offer better rates to high credit score consumers.”

For a complete copy of the report click Discounting in Mortgage Markets

Mortgage Brokers have a fiduciary responsibility and are bound by a code of ethics to work for you – not the banks.  So there!