Welcome to Mortgage Rundown, a quick take on Canada’s home financing landscape from mortgage strategist Robert McLister.
It used to be possible to go to one mortgage rate comparison website and quickly see all the best mortgage deals in Canada. Not any more.
For business reasons, some of the top rate sites have changed the way they display rates. Personally, I don’t like how hard it’s become to compare rates these days. Hence, this story.
If you’re out there shopping mortgages online, I want you to be aware of four things in particular:
1. No one site has all the best deals
Rate shoppers must now visit multiple websites, the most prominent being RateHub.ca, rates.ca and Wowa.ca, to compare the lowest rates. That means you can’t rely on just the top one or two sites you see in a Google search.
Here’s a simple example. I went shopping for the lowest default insured five-year floating rate. As of Wednesday at 3:30 p.m. ET, the lowest I found was 4.19 per cent from Butler Mortgage, a discount broker lending mainly in Alberta, British Columbia and Ontario.
I then checked five pages of Google results for “best variable mortgage rates.” The lowest rate (4.19 per cent) appeared on only one site, wowa.ca.
On any given day, you might instead see the lowest on ratehub.ca or rates.ca. The reason is simple: Most big rate sites charge a fee for mortgage providers to show their rates, and/or they ban certain highly competitive providers so that their in-house lenders are not undercut.
2. Bad data
Some rate sites in the top 100 Google listings (not naming names) are pure junk.
They feature rates that haven’t existed for a year. I just saw one promoting a fake five-year fixed rate of 2.04 per cent. These guys should be shut down by regulators for false advertising.
As someone who used to run a rate site, I can tell you that innocent mistakes do happen. But very few rate sites take accuracy seriously enough to consistently avoid errors.
3. Confusing rates
Some sites like to lure you in with rates that don’t apply. They add roadblocks to prevent you from quickly finding rates 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 relevance to the three out of four Canadian mortgages that are uninsured.
4. Key features are missing
No site in Canada has what borrowers need most, highly detailed mortgage feature comparisons.
Without which, it’s impossible to intelligently compare mortgages without speaking to an expert. And most experts only want to talk about the mortgages they sell.
What you really want as a mortgage shopper 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 shop them all, because none of them will continually show you the best deals.
Don’t waste your time checking big bank websites for rate deals. They almost always show inflated special offer or posted 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 a mortgage specialist).
Once you find a few rates that look interesting, contact the provider of those rates directly. Here are 10 sample questions you can ask them:
1. Do I qualify for this rate assuming:
a. my FICO score is/is not above 720
b. I do/do not have two years of provable income, and
c. my total debt ratio (monthly mortgage/property tax/heat/loan payments divided by monthly gross income) is/is not 44 per cent or less?
2. What is your penalty policy if I break the mortgage early? If it’s a fixed rate, how does your penalty formula compare with the Big Six banks (which generally have the costliest fixed-rate prepayment policies)?
3. Will the lender allow me to increase my borrowing without penalty before maturity?
4. How long do you give me to port the mortgage to a new property? Look for 60 to 120 days if you plan to move before maturity.
5. Can I refinance with any lender at any time?
6. How much extra can I pay off early without penalty?
7. Can I get a line of credit with my mortgage where the available credit line automatically increases as I pay down 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 rate guarantee over 30 days, a 30-year amortization or financing on a rental/vacation/second home property?
You’d be well-served to contact an experienced independent mortgage broker as well. If you don’t have a good referral, look for one with at least two-plus years’ experience, at least $10-plus million in personally closed mortgages this year, good reviews, social media activity and a professional website with current information.
Ask that broker to compare what they can offer you with what you’ve found online. Then use the broker’s knowledge and the lender’s knowledge to help pick your best offer.
Canadian rates stable after Fed hike
The world’s most powerful central banker promised to “keep at it” on Wednesday, right after hiking U.S. rates another 75 basis points, or 0.75 of a percentage point.
“Inflation has not really come down,” Federal Reserve chairman Jerome Powell said in a press conference, adding that long-term inflation expectations remain “well anchored,” but that is not grounds for complacency.
History warns against “prematurely” cutting rates, he warned, countering the market’s expectations for rate cuts in 2023. Mr. Powell pledged to keep rates elevated for a “sustained” period of time.
Many who are shopping for a home are hoping rates come back down. But that’s a low probability for several months, if not several quarters.
We won’t hear 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, plunging job openings, falling wage gains, a more than one percentage point increase in unemployment, and inflation to be more than halved.
All of this is going to take well into next year, maybe longer.
Then there’s the other unknowns – examples of which include the direction of oil prices – the single biggest driver of inflation this year – and whether Vladimir Putin becomes further unhinged, threatening imminent nuclear war. News out of left field could radically shift the direction of Canadian mortgage rates.
Alterna still dominates
Alterna Bank – with barely a billion dollars in assets versus RBC’s $1.7-trillion – continues to lead the lender pack.
Alterna is now the last national mortgage provider with an uninsured five-year fixed rate (4.84 per cent) under 5 per cent.
Among national lenders, it’s also got a foothold on the lowest uninsured variable (4.90 per cent) and one- to four-year fixed rates. The bank (wholly owned by credit union Alterna Savings) cites its abundance of low-cost deposit-based funding as one reason it can offer these “special” rates.
Rates in the accompanying table 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 a 20 per cent down payment, or those switching 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.