Spring is always a competitive season for mortgage lenders, but this year is a true standout; lenders small and large (including the Bank of Canada) have cut rates, some to historic lows – five-year fixed options have dipped as low as 2.44 per cent in some provinces, and even Canada’s big banks are offering rates below the 3 per cent threshold.
In fact, things have gotten so hot, that lenders are getting creative with their discounts; not content to simply offer the lowest rate, we’ve seen a few tactics this year that put a new spin on mortgage marketing. Here’s a look at what’s been introduced in the market so far.
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Big Banks Getting in on the Game
Usually it’s brokers and other smaller lenders who push the pricing envelope – but in March, BMO and TD made headlines by cutting their 5-year fixed rates to 2.79 per cent – the lowest ever for large federally-regulated banks (TD has since cut further to 2.74). Not to be outdone, RBC has since countered with a 2.69 per cent rate for the term, labelled as “employee pricing”. They aren’t directly advertising that rate, rather it’s a word-of-mouth tactic to keep customers coming to them, as competing banks usually only beat posted rates.
CIBC has taken a slightly different tactic with a teaser rate, offering a 1.99 per cent four-year promotion for the first nine months, with the APR going up to 2.83 per cent after.
And, perhaps lowest of all was credit union Meridian, which introduced an 18-month 1.49 per cent fixed rate in April – the lowest rate ever introduced in Canada, for any term. While no longer available, it offered short-term borrowers very affordable, if temporary, monthly payments.
Remember: Rates Aren’t Everything
Mortgage shopping usually goes like this. You find the lowest posted rate, you take that to your lender and ask them to beat it or walk away. But in some cases these ultra-low rates also come with ultra-strict conditions. For example, some have short closing dates of only 30 days. Others have rigid repayment options. Some lenders stipulate that you can only make a lump sum payment that represent 5 per cent of what you originally borrowed and increase your regular payment by 5 per cent. That will do very little to reduce the interest you’re paying and will not significantly shorten your amortization. In a regular mortgage term a lender will hold the rate for 120 days and allow a borrower to pay back 20 per cent of the principal original borrower and increase payments by as much as 100 per cent if they can afford to.
Also read: 4 Essential Mortgage Features to Ask For>
Better Terms Can Beat Lowest Rate
When signing up for a mortgage you may want to consider a slightly higher rate, but with standard terms. If you’re lucky enough to see a boost in your income, or come into extra cash in the near future, you can easily use it to reduce your mortgage loan. But if your terms are too strict you may not be able to make much of difference. If for example you originally borrowed $400,000 in a regular five-year fixed you could put an extra $60,000 down in lump sum payments each year and double your regular payments. This would dramatically reduce your amortization and save you thousands in interest payments.
How much could you save by changing your mortgage payments? Find out with RateSupermarket.ca’s Mortgage Payment Calculator>
My Best Mortgage Advice
Always buy a house with 20 per cent down payment to avoid CMHC insurance. As well, to protect yourself from an interest rate hike, pay your mortgage as if its 2 percentage points higher than what the bank offered. So if you have a rate of 2.74 per cent, make payments as if its 4.74 per cent. This more rapidly reduces your principal and it sets you up for an interest rate hike if that’s the case when you go to renew. As a borrower you don’t want your mortgage to be completely no no-frills. After all it is the biggest investment most of us will ever make. Paying a modest premium of 40 bases points is worth it to have flexibility, options and a quality lender. Banks are pulling out all the stops to capture the most customers, use that to your advantage and find the mortgage rate and term that suits you best.