TD & RBC raised the POSTED rate… but not their REAL rates

Much has been written about last week’s Posted rate hikes by TD and RBC. Don’t panic! This is just their posted rate – it’s not the actual rate they give to clients.

I do, however, think we’ll see a minimal rate hike in the coming weeks due to five-year Government of Canada bond yields increasing slightly. Fixed rates are priced closely to bond yields.

Here’s another piece of info the banks don’t want advertised: Last week, I published an article about Inflated Mortgage Penalties and how the BIG SIX BANKS use an unfair formula to calculate your penalty.

Good timing. The next day, these two banks did what I reported. They’re registering a larger rate discount, which will end up costing you a higher penalty if you need to break your mortgage early!

MY ADVICE…

I’ve been advising my clients to go variable – especially if you’re with a BIG SIX BANK.  Your penalty will always be capped at three-months’ interest, which is much better than a potential, 10, 12 or even 14-months’ penalty! Yup, that’s right, banks have charged many borrowers outrageous penalties that have cost $10,000, $20,000, $30,000 or more.

Variable-rate mortgages have historically cost borrowers less to own their homes as they’ve been lower than fixed rates about 88% of the time (based on a study by Professor Moshe Milevsky from York University’s Schulich School of Business).

Any guesses on which mortgage product is the most profitable for banks? That’s right, the five-year fixed rate. There’s consistent messaging used by the media and banks that choosing a five-year fixed rate provides us with certainty… a guaranteed payment for five years.

This may be true, but no one has ever said it’s the lowest cost option. Choosing a fixed rate is like buying insurance – you’re paying for the privilege of knowing your payment.

Personally, I’ve almost always opted for a variable-rate mortgage. I’ve only ever taken short-term fixed-rate products when variable-rate pricing wasn’t attractive (such as Prime minus 0.40% or worse).

You have options!

The choice is yours. You can take certainty or you can choose to play the odds of paying less. Ask anyone who has ever been in a variable-rate mortgage if they have any regrets.

There are exceptions to every rule – and a place and time for fixed rates. For instance, lenders sometimes have requirements that make qualifying for variable much tougher. And variable-rate mortgages for rental properties are also priced higher.

There’s no one-size-fits-all mortgage. And asking, “What’s your best rate?” may sound like a wise question, but you can save more by taking other factors into consideration above and beyond rate alone. You need to know the product differences, options, privileges, potential penalty exposure, etc. This is where you can uncover the true savings. Speak with an experienced mortgage broker who will offer unbiased advice.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca