Being a mortgage broker, I get some common questions.

The first being “what’s your best rate?” I used to fear this question, until I found out that it simply opens up the conversation. My best rate depends on a number of factors. You, your credit, the property, the location, etc. etc. Where would you like to start the discussion?

This is followed almost immediately by, “why do you need to know all that? I just want your best rate!”

I haven’t yet, but someday I’d love to say, “you mean my VERY best rate? The one I only give to my preferred customers? The ones that are willing to work with me and provide me exactly the information I’m looking for? That best rate? Oh, that would be 0%. Can you beat that?”

Other brokers, aren’t as sarcastic, but when all the customer asks is today’s best rate, what they’ll eventually say is 0%.

You can’t get any lower than that can you. It’s pretty much the bottom of the barrel. No more comparisons. That’s it. I win. Right? Is that what you were looking for? Silence usually follows.

I’ll leave the readers to ponder that one for awhile.

The next question that comes up regularly is, “how come your rates are so much lower than the banks rates?” How do we do it?

To answer that, first off let’s compare apples to apples. Banks have what we in the business call posted rates. This is what customers are offered if you come in off the street, have no history with the bank, they don’t know you, etc. In other words, NO ONE should be getting this rate. Most everyone has a bank account from which some form of income gets deposited and bills get paid. What ever banking institution you have an account, start there. Tell them you are a good customer (they’ll check anyway) and that you would like a discount on your mortgage rate. They’ll smile and say sure, we can do that and they’ll give you a whole half a point off of their posted rate.

I know what you’re thinking. Anyone can do that, that’s too easy. Well, most people are intimidated by their banks, so they don’t even ask. Their lost, the banks (huge) gain.

Prime lending rate. This is set by the Federal Reserve… Ok, technically in Canada it’s set by the Bank of Canada, but it sure seems to be in lock step. This in theory is the rate at which banks can “borrow” funds. Banks want to make money (that’s their role), so they charge more than prime.

Now that you are a savvy consumer and you tell your bank you do all your business with them and you want a really BIG discount on your mortgage. They smile again and say OK, for you our valued customer, will get you a rate that is BELOW prime.

But wait doesn’t this mean the banks will lose money if they lend it out below what they “borrow” at? Well, if you look at the bigger picture, you’ve just told the banker that you do all your business with them, thus they are already making money off you (service fees, loans, VISA, interest etc), they can afford to give you a better than average or below prime rate. They’re still making money, don’t kid yourself. Remember that’s what they do.

Now you are a really wise consumer and you start to call banks. You tell them you want the very best rate (I’m sure they get this question too). You explain you will transfer ALL you business if you can beat bank X’s current offer. Banks are more than happy to compete IF you offer them more than just one product, although sometimes a mortgage can be enough.

So you find out from bank Y, that they are willing (or hungry) to drop the rate even further. Now we’re talking a full point off of posted rates and hopefully a half point below prime.

Wow, you say, it really does pay to shop around. I’d say yes, but to a point. If you manage to get a really good rate WITHOUT a formal application at each bank, you are laughing. Unfortunately, today everyone wants to see your credit rating BEFORE they give you that rate.

Read one of my previous posts on fixing your credit rating to understand why this is BAD.

So to avoid having your credit pulled several times and deal with someone who has already “shopped” the banks for you, knows the absolute bottom rate and doesn’t cost you a dime, why not talk to a mortgage broker?

Which leads us to broker rates. Mortgage brokers deal in volume. And just like in any supply and demand model, “volume” discounts are available. This is the “very best rate” you can get… assuming you qualify and provide all the information needed.

So in summary (thanks to those that made it this far), we have:

Bank posted rates

Prime lending rate

Below prime lending rate

Broker rates

Now there’s also something called “teaser” rates. These are the rates you see posted on peoples websites. These are there simply to make you call. “Your website says…” Great way to open a conversation. So, I understand you are looking for a mortgage.

Don’t get me wrong, the number posted MUST be available (by law). But I don’t know anyone who only wants to pay some ridiculously low rate for only 3 or 6 months, only to have it reset to some “below” prime rate (not even broker rate) for the remainder of the term.

Oh, and the 0% rate? For the first 30 days of the mortgage, there will be no interest charged (guaranteed!), but the very next day the interest starts, going back to day one. Just like when you pay off your credit card each month. So if you can pay off your mortgage in 30 days, no interest.

In my travels trying to pick up new business, I inevitably have to go into banks to talk with the branch manager or folks on the mortgage sales team.

Now beyond the usual lines I get from different branches, I’ve noticed a few interesting things.

First, it’s RSP season. Now things have changed and I’ve had 3 different branch managers confirm this. RSP season used to mean EVERYBODY worked extra long hours in order to clear out the log or backlog of applications. Everybody and his dog was trying to get in that last little extra deduction for tax purposes. Long lines, branches staying open until 10PM to talk with all the clients or meeting all the clients during the day & then staying long after the doors close to enter all the information about the clients they met that day.

But NO MORE. It seems, generally, folks are planning ahead. They are doing a little more budgeting and a little less panic at the end of the tax season. No longer are branches open to all hours of the evening. Don’t get me wrong the folks at the bank are still pulling their hair out at this time of the year, but it’s a manageable “pull”.

The other thing I’ve noticed, irrespective of what everyone thought the Federal Reserve and/or Bank of Canada would do (i.e. raise rates), all the major banks raised their broker lending rates.

I thought this was an interesting correlation. It’s RSP season and in order to cover this demand, they get the mortgage folks to help out by making their broker rates (and presumably internal rates) less attractive by raising them. And we’re not talking about a few basis points, but a full 20 bps!
Am I wrong? Well not according to the branch managers I’ve been speaking with. To be fair, they bring up the subject of rates and then I say, oh yeah, it’s RSP season that’s why they went up. Pause. Silence. Well, I’ve never thought about it that way. Makes sense thought doesn’t it.

I rest my case. I’ve always noticed that rates (at the banks) go up in January. I never thought much of it, until I starting going in to different banks and noticed they all have signs and displays telling us about the RSP count down.

So for those buying real estate, get it done before January or closer to the end of RSP season, IF you plan on using a bank. For those smarter folks using a broker, there are plenty of lenders who have yet to change their rates.

Just one more reason why you should let a mortgage broker shop around for the best rates for you.

Next time, posted rates, prime rate, discounted rates and broker rates. What are the and what’s the difference.