Canadians are overpaying for mortgages by choosing big banks, LowestRates.ca finds
February 15, 2019
Loans from Canada's "Big Six" banks—RBC, TD, BMO, Scotiabank, CIBC, and National Bank of Canada—account for an overwhelming part of the mortgage market despite the fact that there are many alternative, often cheaper, options available to Canadians. According to data compiled by LowestRates.ca, an online recommendation site for personal finance products like insurance, mortgages, loans and credit cards, big bank mortgage rates were consistently the most expensive options available to Canadians throughout 2018. What's more, the lowest posted rates offered by Big Six banks were always more costly than the lowest rates available from smaller lenders.
"The big banks never offer the lowest posted rates on the market, but Canadians aren't spending enough time researching rates before signing their mortgages, and that's potentially costing them thousands of dollars a year," said Justin Thouin, CEO and Co-Founder of LowestRates.ca. "We compare prices when we do less costly things, like take a trip or buy a TV, but we don't shop around for rates for homes—one of the most expensive purchases we'll likely ever make—despite the fact that the money we can save on a vacation pales in comparison to what we can save on a mortgage."
Smaller lenders and brokers continually offer more affordable mortgage rates than those posted by banks. Last month, for example, RBC announced it was decreasing its five-year fixed-rate mortgage to 3.74 per cent. With the bank's new rate, consumers would pay $2,560 per month on a $500,000 mortgage (assuming that a down payment of at least 20 per cent was made when buying the home to avoid CMHC insurance, and a 25-year amortization period), but in the same buying scenario mapped onto the best currently available five-year fixed-rate mortgage—3.23 per cent—monthly payments would be lowered to $2,426. Over the course of the 25-year mortgage, $134 in monthly savings amounts to an additional $40,200.
Mortgage rates fluctuate based on the rates at which lenders, such as banks and other brokers, borrow money (often these lenders must borrow money to ensure they can meet the demands of consumers requiring mortgages). If the rates that lenders borrow at falls, the rates that consumers borrow at should fall in conjunction. However, with big banks, this often isn't the case.
"Brokers and smaller lenders often drop their rates first to be more competitive, and banks are slower to implement changes because they know they own the market," Thouin went on to say. "This will only change when Canadians realize they're being overcharged and begin to shift away from the banks, and that will only happen as we increase awareness about the alternative market. The best deals are found online, not in your family's legacy bank branch."