If you have done any searching for mortgage products or rates online, you have most likely come across a rate comparison site of some kind. Understanding how they are set up and how they work will allow you to make informed decisions when choosing a mortgage provider. Here is some background information and some things you should know rate comparison sites!
Prefer to listen to this post instead of reading it... here you go!
What is a Rate Comparison Site?
A rate comparison site is basically an advertising bulletin board that pits banks, lenders and brokers against each other in an attempt to turn a mortgage into a product that can be sold at the lowest price. Although there is nothing fundamentally wrong with this, you have to make sure you are comparing apples to apples and read the fine print before jumping at the lowest possible rate.
Rate comparison sites do not fulfill mortgage applications, rather they get paid for placed advertisements and application submissions.
How to Evaluate Rate Comparison
Depending on how the site is set up, you will most likely see several lenders, banks and/or brokers (lets call them suitors from now on) listed offering different term mortgages at different rates. For simplicity sake, lets group these suitors into 3 categories, we will call them - High, The Pack & Low
High - Not every suitor will have an appetite for every term at all times. Sometimes they will knowingly price themselves out of the market for a certain term because they are being aggressive with another term. Just forget about them and move on. Avoid High.
The Pack - Typically you should see the majority of suitors all within the same price range, varying by 0.10% to 0.30% this is not uncommon and represents the going rate of the day. This is where you want to be.
Low - Remember apples to apples, most rate comparison sites present these rates alongside rates from The Pack. Only when you click through a little deeper and read the fine print do you see conditions like ***OAC, no preapprovals, no switches, no transfer, minimum mortgage amount $150k, no frills, non-transferable, 30 day quick close only, no pets, no rentals no children... you get the point.
From my experience, the little amount of money you save by going with a no frills product is not worth the handcuffs you put on your future.
For the most part, even the suitors offering low rates are doing so only to get the phone to ring, they will probably try and convince you of securing a mortgage at a rate that is similar to the pack anyway. It is bait and switch, personally I think it is dirty and I don't like it.
Mortgage as a Product or a Service?
Now as I mentioned the goal of the rate comparison site is to turn a mortgage into a product to be sold at the lowest rate. This isn't a bad thing, however you have to be honest about how much you know about mortgages. If you are someone who has bought and sold properties in the past and keeps up to date with mortgage trends and understand the intricate details of mortgage products while having a concrete plan that will not change, using a rate comparison site to find the rock bottom rate (regardless of conditions) is likely a good idea.
However if you are new to the mortgage process and/or are buying your first home, then you aren't looking for a product, you are looking for service. You need someone to explain the process to you so that you can make informed decisions about what is best for you.
At First Foundation we are dedicated to making sure our clients feel educated and informed with respect to the mortgage process.
We use our experience and professional knowledge to assist our clients in selecting the best mortgage product for them. So you might ask, why is it better to deal with a mortgage broker than a bank? Good question.
Breaking Down The Pack
Now, any lending institution who is actively engaged in lending money on mortgages expects a return on their investment, that is just business. <simplified> Most banks and most broker channel lenders have a comfort zone they want to be in when it comes to their returns, however because banks typically have a higher fixed cost than the broker channel lenders, they have to charge more for the exact same product.
It is not uncommon to see broker channel lenders priced 0.30% lower than Canadian banks on a 5 yr fixed mortgage with identical conditions and privileges.
This is because there is a fundamental difference in the way broker channel lenders source their business compared to banks. Where the banks have a fixed cost and overhead (branches on every street corner) the broker channel lenders rely on mortgage brokers to source their mortgage leads and only pay commissions once the mortgage has been funded. As such, mortgage brokers have a competitive pricing advantage for identical products.
Simply put, we sell the exact same apple at a lower price than a bank will.
Lets Do The Math
So how significant is 0.30% anyway? Lets run the numbers. Assuming a $300k purchase price, with 5% down (including Insurance Premiums) your mortgage payments would be $1460/mth with a 25 yr amortization on a 5 yr. fixed term at 3.49%. Compare those identical terms to a rate of 3.79% and your payment goes to $1507/mth. Although the difference is only $47/mth, when you look at how that adds up over the 60 months - you paying an extra $2820 for absolutely no reason. That is cheddar directly out of your pocket. That is almost 3 of these!
First Foundation Compared to the Banks
So lets do a little rate comparison of our own... if you like seeing the lowest rates represented, here is the rate page for every major bank in Canada, compared to First Foundation (representing broker channel lenders), compared to a couple of local Credit Unions.
To save you from clicking through each page, As of todays's date, First Foundation is at 3.49% for a 5 yr fixed while the banks are all sitting at 3.79% or 3.89%.
If you would like to talk with one of our mortgage professionals, please feel free to contact us anytime. We would love to work with you!