There was an article in the Globe and Mail recently entitled ‘Why use a mortgage broker?’. No, this image wasn’t part of the article but it’s an image that many will conjure up when we hear the word ‘Banker’.
The article talks about why Financial Planners and other professionals will recommend, and work with, a Mortgage Broker vs. having the client go directly to the Bank. Here’s a few quotes from the article that make it easy to understand.
- “It’s the most efficient way to get the best-priced and best-structured mortgage”.
- “So rather than shopping at multiple financial institutions and negotiating with each financial institution and arm wrestling them to give you the best deal, it’s one phone call and they do the rest for you.”
And here’s some facts from a Bank of Canada review published in February 2011 entitled ‘Competition in the Canadian Mortgage Market’:
- This one is no surprise…. “The results also indicate that borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”.
- Here’s one that may surprise many of you… “The results also indicate that higher income households pay higher rates, on average, than lower-income households.”
- And here’s another one… “Banks also offer larger discounts to new clients than to existing clients.”
I’ll add a few more of my own…. A broker shops the market…doesn’t work for any one lender but instead works for the borrower….. and provides the borrower with clear, neutral and unbiased advice. Brokers save borrowers money and will continue to shop for better rates at renewal and throughout the life of the mortgage…
FIXED RATES MAKE MORE SENSE TODAY.
If you were in a Variable rate mortgage over the last 2, 3, 5, 10 years or longer….then you paid less interest than someone in a Fixed rate product. You probably saved $$thousands each and every year. Variable rate has been lower than the 5 year fixed rate in over 88% of the time.
But how about today….? Well, the Banks have changed the mortgage landscape. They have decided there isn’t enough profit in Variable rate mortgages. Up until 6 months ago, anyone needing a new mortgage could get a Variable rate at Bank Prime (3.00%) less 0.75% and maybe even a little better..! If you took a Variable rate 4 years ago, you might still be enjoying Prime less 0.90%!! Today, a quick search on the net for Variable rate pricing and you’ll find Bank Prime less 0%…. some are actually charging Bank Prime + 0.15%.
But it’s not all bad news. With the bond market hitting all time lows, we are also experiencing historical low 5 year fixed rates. Today, the best 5 year fixed rate seems to be 3.39% (WORD OF WARNING… there are some NO FRILLS rates of 3.19% or lower being advertised out there… these NO FRILLS products carry limited or no prepayment privileges and you cannot exit these product without selling your home. We are not quoting those rates).
Any upward movement in the Bank Prime rate and you could actually be paying more for that Variable rate vs today’s 5 year Fixed rate. Yes, today we must consider Fixed rate as a good option…. Just make sure you are choosing the appropriate term. Anything shorter than 3 years does not seem to give enough of a rate guarantee for most of us. Anything longer than 5 years is too costly. 5 years seems to be a good option in most cases. But not for all… we are all different and have different needs… speak to a Mortgage Broker to review all available products and decide which one fits you best.
My guess is that Variable rate pricing will continue to be priced at Bank Prime for the next 6 months to 12 months or at least until Bank Prime moves up or until one of the Banks is losing too much market share and wants to attract more business.
We will be watching and reporting.