Welcome to Mortgage Rundown, a brief overview of the real estate finance landscape in Canada from a mortgage strategist Robert McLister.
It used to be that you could go to a mortgage rate comparison website and quickly see all of the best mortgage deals in Canada. Not anymore.
For business reasons, some of the top sites have changed the way they display rates. Personally, I don’t like how difficult it has become to compare rates these days. Hence this story.
Calculator: Compare the impact of different interest rates on the cost of your mortgage
If you’re shopping for mortgages online, I want you to be aware of four things in particular:
1. No site has all the best deals
Fare buyers now have to visit several websites, the most important being RateHub.ca, tariffs.ca and Wowa.ca, to compare the lowest fares. This means you can’t just rely on the top one or two sites you see in a Google search.
Here is a simple example. I went shopping for the lowest guaranteed variable rate in five years. As of 3:30 p.m. ET on Wednesday, the lowest I found was 4.19% at Butler Mortgage, a discount broker lending primarily in Alberta, British Columbia and Ontario.
I then checked five pages of Google results for “best variable mortgage rates”. The lowest rate (4.19%) appeared on a single site, wowa.ca.
On any given day, you might instead see the low on ratehub.ca Where tariffs.ca. The reason is simple: most big rate sites charge mortgage providers a fee to post their rates, and/or they ban certain highly competitive providers so that their internal lenders aren’t undercut.
2. Bad Data
Some rate sites in the top 100 Google listings (not naming names) are pure junk.
They offer prices that have not existed for a year. I just saw one promoting a bogus 2.04% five-year fixed rate. These guys should be shut down by regulators for false advertising.
As someone who ran a pricing site, I can tell you that innocent mistakes happen. But very few pricing sites take accuracy seriously enough to consistently avoid errors.
3. Confusing prices
Some sites like to lure you in with rates that don’t apply. They add roadblocks to prevent you from quickly finding the fares you’re looking for unless you talk to them or give them personal information.
Some, for example, only show insured rates, which have absolutely no relation to the three out of four Canadian mortgages that are uninsured.
4. Key features are missing
No site in Canada offers what borrowers need most: very detailed comparisons of mortgage features.
Otherwise, it is impossible to intelligently compare mortgages without talking to an expert. And most experts only want to talk about the mortgages they sell.
What you really want as a mortgage buyer is the lowest overall cost of borrowing given your five-year plan.
The best way to navigate today’s rate sites
Stick with the top three or four rate sites on Google, but buy them all because none of them will continually show you the best deals.
Don’t waste your time checking the major banks’ websites for pricing offers. They almost always display inflated special offers or advertised rates. If you’re well qualified, you can usually get better deals by calling one of their local “mortgage specialists” (not a branch – insist on having a mortgage specialist).
Once you’ve found a few fares that sound good, contact the provider of those fares directly. Here are 10 examples of questions you can ask them:
1. Am I entitled to this rate assuming:
a. my FICO score is/is not above 720
b. I do/not have two years of provable income, and
vs. my total debt ratio (monthly loan/property tax/heating/loan payments divided by monthly gross income) is/is not 44% or less?
2. What is your penalty policy if I terminate the mortgage early? If it’s a fixed rate, how does your penalty formula compare to that of the big six banks (which typically have the most expensive fixed rate prepayment policies)?
3. Will the lender allow me to increase my loan without penalty before maturity?
4. How long do you give me to transfer the mortgage to a new property? Look for 60 to 120 days if you plan to move before the deadline.
5. Can I refinance with any lender at any time?
6. What additional amount can I prepay without penalty?
7. Can I get a line of credit with my mortgage where the available line of credit automatically increases as I pay off the mortgage (assuming you need this feature)?
8. Are the payments fixed on your variable rate?
9. Can I skip a payment?
10. Do you charge extra if I need a 30 day rate guarantee, 30 year amortization or financing on a rental/vacation/second home property?
You would also be well advised to contact an experienced independent mortgage broker. If you don’t have a good reference, look for one with at least two years of experience, at least $10 million in personally closed mortgages this year, good reviews, social media activity, and a website. Professional web with up-to-date information.
Ask that broker to compare what they can offer you with what you found online. Then, use the broker’s knowledge and the lender’s knowledge to help you choose your best deal.
Canadian rates stable after Fed hike
On Wednesday, the world’s most powerful central banker vowed to “hold on”, just after raising US rates another 75 basis points, or 0.75 percentage points.
“Inflation hasn’t really come down,” Federal Reserve Chairman Jerome Powell told a news conference, adding that long-term inflation expectations remain “well anchored,” but this is not a reason for convenience.
History warns of a ‘premature’ rate cut, he warned, thwarting market expectations of rate cuts in 2023. Mr Powell has pledged to keep rates high for a period “sustained”.
Many of those shopping for a home are hoping for rates to come down. But it is a low probability for several months, even several quarters.
We won’t hear serious talk of rate cuts until we see a lot more “pain,” as Mr. Powell puts it.
That could mean another quarter or two of negative GDP, falling job vacancies, falling wage gains, more than a percentage point rise in unemployment, and inflation more than halving.
This will all last well into next year, maybe longer.
Then there are the other unknowns – examples of which include the direction of oil prices – the main driver of inflation this year – and whether Vladimir Putin becomes even more unbalanced, threatening imminent nuclear war. News out of left field could dramatically change the direction of Canadian mortgage rates.
Alterna still dominates
Alterna Bank – with barely $1 billion in assets compared to RBC’s $1.7 trillion – continues to dominate the lender pack.
Alterna is now the last national mortgage provider to offer an uninsured five-year fixed rate (4.84%) below 5%.
Among domestic lenders, it also gained a foothold on the lowest uninsured variable (4.90%) and one- to four-year fixed rates. The bank (wholly owned by credit union Alterna Savings) cites its abundance of low-cost, deposit-based financing as one of the reasons it can offer these “special” rates.
The rates shown in the attached chart are as of Wednesday from providers that advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than 20% down payment or those transferring a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1 million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.