Given how expensive houses are, you’d think that buyers would do their utmost to get the lowest possible interest rate.
But, often, this isn’t happening. A new survey shows a minority of people setting up, renewing or refinancing mortgages are using mortgage brokers, which means the majority are working through banks and credit unions.
Error alert. For three reasons, everyone with a mortgage should aim to at least talk to a mortgage broker before signing a contract with a bank or credit union:
- Mortgage brokers can very likely offer a lower mortgage rate.
- A broker has access to many lenders, and that raises the likelihood of you getting mortgage terms that suit your specific needs.
- Brokers have access to lenders that charge much lower penalties to break a mortgage before it matures.
Just 32 per cent of the 1,800 or so mortgage-holders who participated in the Canadian Mortgage Monitor survey by Ipsos indicated that they have used a mortgage broker, down from 34 per cent in a similar survey a year earlier. The survey included 3,000 people over all – 60 per cent of them had a mortgage.
Younger people seem the most open to using a broker – 44 per cent of millennial mortgage-holders in the survey said they use one, compared with 28 per cent of Gen Xers and 22 per cent of baby boomers. Forty per cent of females in a survey used a broker, compared with just 25 per cent of men.
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Brokers seem to be favoured mainly for new buyers, 46 per cent of whom used this channel in the past two years. Among those refinancing a mortgage to increase the amount borrowed, 38 per cent used a broker; among those renewing, just 26 per cent did so.
Mortgage brokers deal with a wide variety of lenders, some of whom may be more restrictive on allowing clients to pay down the mortgages. But on rates, these lenders often deliver. One of the big banks had a special five-year fixed rate offer of 3.04 per cent to start the week (you might be able to negotiate that down), while the best rates from lenders available through mortgage brokers were between 2.39 per cent and 2.69 per cent.
At 2.55 per cent, a broker could save you $165 a month on a house bought at the average national resale price of $716,585 with a 10-per-cent down payment. Over five years, $165 a month works out to $9,900.
Why are so few people who need a mortgage using brokers? The Ipsos survey suggests people feel most comfortable having their mortgage at the financial-services provider where they do other business. Seventy-one per cent of people in this group were well satisfied with their mortgage lender, compared with 57 per cent for those who have a mortgage at another lender.
According to Ipsos, the drivers of mortgage satisfaction are more touchy feely than purely financial. In other words, dealing with people who understand your needs and make you feel valued as a customer is weighted more than competitive rates.
No question, it’s convenient to have your mortgage with your main bank. You can, for example, make an extra mortgage payment with a few clicks on your bank’s website. If you have a good relationship with an account rep at your bank, mortgage-related questions and requests can be handled expeditiously.
Banks know all this – it’s why they often don’t offer rates and terms as favourable as the ones mortgage brokers can get for you.
This brings us back to the No. 1 reason why people use mortgage brokers – to get a lower mortgage rate. How satisfied are they? According to the Ipsos survey, 71 per cent of people who used a mortgage broker rate their overall experience as very good or excellent.
A great thing about mortgage brokers is that you don’t actually have to give them your business to get a low rate. Merely having the offer of a better rate could be enough to get your bank to lower the rate it initially offered.
Ipsos found a startling lack of interest in switching mortgage lenders on renewal – just 11 per cent of people in the Ipsos survey said they planned to make a change at their next mortgage negotiation. This finding adds urgency to a most basic bit of mortgage advice: Always consult a mortgage broker when arranging a mortgage. If you want to get the lowest rate, that is.
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Rob Carrick