Welcome to Mortgage Rundown, a brief overview of the Canadian home financing landscape from a mortgage strategist Robert McLister.
It used to be possible to go to a mortgage rate comparison website and quickly see the best mortgage deals in Canada. No longer.
For business reasons, some of the best rate sites have changed the way they display rates. Personally, I don’t like how difficult it has become to compare tariffs these days. Hence this story.
Calculator: Compare how different interest rates affect the cost of your mortgage
When buying mortgages online I want you to be aware of four main things:
1. No site has the best deals
Price buyers now have to visit several websites, the most popular being RateHub.ca, rates.ca and Wowa.ca to compare the lowest prices. That means you can’t just rely on the one or two sites you see on a Google search.
Here’s a simple example. I was looking for the lowest fail-safe five-year floating rate. As of 3:30 p.m. ET Wednesday, the lowest reading I found was 4.19 percent from Butler Mortgage, a discount brokerage that originates loans primarily in Alberta, British Columbia, and Ontario.
I then searched five pages of Google results for “best adjustable mortgage rates.” The lowest rate (4.19 percent) was only seen on one website, wowa.ca.
On a given day, you can see the lowest price on ratehub.ca or rates.ca instead. The reason is simple: most high rate websites charge mortgage lenders a fee to display their rates and/or ban certain highly competitive lenders to avoid undercutting their in-house lenders.
2. Bad data
Some review sites in Google’s top 100 lists (without naming names) are pure rubbish.
They have prizes that haven’t existed in a year. I just saw one promoting a fake five-year fixed rate of 2.04 percent. These guys should be shut down by regulators for false advertising.
As someone who used to run a review site, I can tell you that harmless mistakes do happen. But very few review sites take accuracy seriously enough to consistently avoid mistakes.
3. Confusing Prices
Some websites like to lure you with prices that do not 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.
For example, some only show insured rates, which have absolutely no relevance to the three out of four uninsured Canadian mortgages.
4. Key functions are missing
No website in Canada has what borrowers need most, highly detailed comparisons of mortgage features.
Without them, it’s impossible to compare mortgages intelligently without speaking to an expert. And most pundits just want to talk about the mortgages they sell.
What you really want as a mortgage buyer is the lowest total cost of borrowing given your five-year plan.
The best way to navigate today’s tariff pages
Stick to the top three or four price sites on Google, but shop them all because none of them show you the best deals all the time.
Don’t waste your time browsing major banks’ websites for rate offers. They almost always show inflated special offers or posted prices. If you are well qualified you can usually get better deals by calling one of your local ‘mortgage specialists’ (not a branch – insist on a mortgage specialist).
Once you find some plans that look interesting, contact the plan provider directly. Here are 10 sample questions you can ask them:
1. Am I entitled to this rate assuming:
a. my FICO score is/is not over 720
b. I do/not do have two years of proven income, and
c. my total debt ratio (monthly mortgage/property tax/heating/loan payments divided by monthly gross income) is/is not 44 percent 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 the Big Six banks (which generally have the most expensive fixed rate prepayment policies)?
3. Will the lender allow me to increase my borrowing before the due date without penalty?
4. How long do you give me to transfer the mortgage to a new property? Look for 60 to 120 days if you want to move before the due date.
5. Can I refinance with any lender at any time?
6. How much extra can I withdraw early without penalty?
7. Can I get a line of credit with my mortgage that automatically increases the available line of credit when I pay off the mortgage (assuming you need that feature)?
8. Are the payments fixed at your variable interest rate?
9. Can I skip a payment?
10. Are there any additional fees if I need a 30-day installment guarantee, a 30-year payback period, or financing for a rental/vacation home/second home?
You are well served by also using an experienced independent mortgage broker. If you don’t have a good referral, look for one with at least two years of experience, at least $10 million in personally completed mortgages this year, good reviews, social media activity, and a professional website with up-to-date information.
Ask this broker to compare their offer with what you found online. Then use the knowledge of the broker and the lender to choose your best deal.
Canadian rates stable after Fed rate hike
The world’s most powerful central banker vowed to “stay tuned” on Wednesday after raising US interest rates by another 75 basis points, or 0.75 percentage point.
“Inflation hasn’t really come down,” Federal Reserve Chair Jerome Powell said in a news conference, adding that long-term inflation expectations are “well anchored” but that’s no reason for complacency.
History warns of “premature” rate cuts, he warned, contradicting market expectations for rate cuts in 2023. Mr Powell vowed to keep rates high for a “sustained” period.
Impact on Mortgages
Many who buy a home hope that prices will come down again. But that’s a slim possibility for several months, if not several quarters.
We won’t hear any serious talk about rate cuts until we see a lot more “pain,” as Mr. Powell puts it.
That could mean another quarter or two of negative GDP, collapsing job offers, falling wage growth, unemployment rising by more than a percentage point and inflation more than halving.
All of this will continue well into next year, maybe longer.
Then there are the other unknowns—examples include the trajectory of oil prices—the single biggest driver of inflation this year—and whether Vladimir Putin will continue to get unhinged and threaten an imminent nuclear war. News from left field could radically change the direction of Canadian mortgage rates.
Alterna still dominates
Alterna Bank – with just under $1 billion in assets versus RBC’s $1.7 trillion – continues to lead the group of lenders.
Alterna is now the last national mortgage provider with an uninsured five-year fixed rate (4.84 percent) below 5 percent.
It has also gained traction among national lenders with the lowest uninsured floating rate (4.90 percent) and one- to four-year fixed rates. The bank (which is wholly owned by the credit union Alterna Savings) cites its abundance of low-cost deposit-based financing as one reason it can offer these “special rates.”
The rates in the attached table refer to Wednesday from providers offering online rates and lending in at least nine provinces. Insured rates are for those buying with less than 20 percent down payment or for those switching an already 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 tariffs vary by province, the highest tariff is displayed.
Robert McLister is a interest rate analyst, mortgage strategist and editor of MortgageLogic.news. You can follow him on Twitter at @RobMcLister.