How To Find the Lowest Rate in the Higher For Longer World

How To Find the Lowest Rate in the Higher For Longer World

Canadian borrowers, homeowners and prospective homebuyers have been waiting for interest rate relief this year, but rate cuts have been delayed as inflation continues to surge. In Canada, inflationary strain has started subsiding since hitting a peak in December, which comes as a breath of fresh air for the Bank of Canada (BoC), the country’s central bank responsible for setting monetary policy. Bond markets and equity traders increased bets that the Bank of Canada will start lowering interest rates in June. 

Several economists said a June rate cut was a strong possibility, barring any surprises in April’s inflation report. Yet, as economists have emphasized, chances are slim that the BoC will contemplate rate cuts until the momentum indicator for their favoured CPI-trim and CPI-median measures consistently stay well below 3%. This implies that their preferred core inflation metrics must fall below 3% and maintain momentum of around or less than 2.5%. 

The Canadian economy seems to have accomplished a ‘soft landing,’ a term used to describe a situation where an economy transitions from a period of rapid economic growth to a more sustainable level without causing a harsh recession. With inflation reverting to target without causing a harsh recession, these conditions are now fulfilled, and the path is paved for a potential rate cut by the BoC in their upcoming June session. 

Despite the optimistic outlook, there are concerns, chiefly the possibility of a significant surge in oil prices due to escalating Middle East tensions. In March, gasoline costs were among the most critical factors influencing the overall Consumer Price Index (CPI), and oil’s price trajectory showed no signs of declining in early April. However, the silver lining for the Bank is the presence of more advantageous base effects moving forward, which may lead to a decrease in headline inflation over the forthcoming months, notwithstanding the current increase in oil prices.

Lack of transparency

Shopping for a mortgage in Canada is becoming increasingly complex, even when mortgage rates finally drop. Mortgage lenders quickly increase rates to avoid losses on their funding costs. But they are slow to lower fixed mortgage rates, priced based on bond yields, which don’t go down in a straight line.  Bond yields throughout market hours, and only brokers and lenders dealing directly with consumers provide these transparent rate changes to their clients daily. 

The most recent development affecting transparency in mortgage pricing involves the acquisition of HSBC Canada by RBC. HSBC was known for being a leader in advertising competitive rates. It was recognized for promoting its lowest rate and offering the same rate to all eligible borrowers, including when it briefly operated through the broker channel. The big banks are renowned for advertising the highest interest rates available in the market. 

The issue of transparency in mortgage pricing is a significant concern for consumers in Canada, as it can impact their ability to make informed decisions about one of the most important financial transactions of their lives. For instance, when lenders are not upfront about their rates, terms, and fees, it creates a barrier to entry for many individuals looking to purchase a home. 

This lack of transparency can also erode trust in the financial system, leading to a sense of unease and skepticism among consumers. To illustrate, a borrower might be led to believe they are getting a good deal on their mortgage, only to find out later that they could have secured a lower rate elsewhere. This can result in significant financial implications over the life of the mortgage.

Negotiating the best rate

Meanwhile, big banks control more than 70% of the Canadian mortgage market, refuse to show daily rate changes and advertise their discounts as special rates. Special rates are not always available on the bank website, while other discounts may only be available to borrowers that meet their criteria with negotiation or relationship bundling. Bundling requires borrowers to move their mortgages, bank accounts, and credit cards. 

Posted rates are negotiable, leaving most borrowers either exuberant that they got the lowest rate with a specific bank or downtrodden that they missed out. The only way to find out is through other borrowers sharing their experiences on Reddit or RedFlagDeals.

Borrowers unintentionally pay more than necessary when unaware of the advertised lower rates. Obtaining the most competitive rates will require significant effort, such as contacting multiple brokers and lenders, utilizing comparison websites, and requesting written offers. Mortgage brokers emphasize the importance of conducting thorough research and discussing rates to ensure you are well informed and prepared, instilling confidence in your decision-making process.

Every little bit counts

Borrowers are increasingly becoming well-informed about the implications of mortgage rates, leading lenders to continuously offer competitive rates, especially to those who actively seek and negotiate. Given the competitive nature of the mortgage industry, there is room for negotiation to secure a lower interest rate and explore the possibility of switching lenders to suit your mortgage needs better. This empowerment in negotiating can significantly impact your financial situation, putting you in control of your mortgage terms and rates.

Reducing a mortgage rate can be beneficial as interest can accumulate over time. For instance, a decrease of 10 basis points (0.1%) for every $100,000 on a 25-year mortgage amortization can result in approximately $500 in interest savings over Canada’s most common 5-year term. Banks and lenders are highly aware of the impact of interest rates on consumer behaviour, and borrowers are willing to change their mortgage providers for even half those savings.

Not all mortgages are the same

Mortgage experts will advise borrowers to be cautious of excessively low rates. Some mortgages are highly restrictive and come with lower interest rates, with  the only way to exit the mortgage is to sell the property, commonly known as a “bonafide sales clause.” In contrast, others might carry punitive prepayment penalties required to discharge the mortgage early or lack features and benefits. 

Borrowers should fully comprehend the features and benefits of any mortgage. This understanding is crucial as it helps you make an informed decision and ensures that the mortgage aligns with your financial goals and needs. Concurrently, it’s essential to inquire about why the low rate is significantly lower than others on the market. This knowledge will empower you to make the best choice for your financial situation. 

On the other hand, there are advantages beyond just the interest rate. Some lenders provide automated appraisals, saving you money and a headache compared to an in-person appraisal. CMHC’s property assessment tool can complete these desktop appraisals if your financing situation meets the criteria. However, they are unavailable for newly built homes or condos as the physical appraisal will be required for warranty reasons. Other lenders, such as nesto, can provide a fully digital mortgage process from start to finish, saving you time and money.

Quit the Game

Monoline lenders like nesto in Canada still offer clear and transparent mortgage pricing. These lenders specialize in providing mortgage loans without any other financial products or services bundled in. This transparency in pricing allows borrowers to easily compare rates and terms offered by different lenders, making it easier for them to make knowledgeable decisions when choosing a mortgage. 

Moreover, when you come up for renewal, you’ll be offered the same rates as new clients – your business is just as valued as the next person. The best part is that you can keep your bank account, investment, and credit cards wherever suits your fancy. This transparency and consistency in service from monoline lenders like nesto can help you feel confident and secure in your mortgage journey.

Are you tired of playing the “Where can I find the best rate this time” game? Then save yourself time and money and contact nesto. Our mortgage experts will be happy to understand your financial circumstances and walk you through our offers to match you to the solution that best meets your needs. Contact us today and lock in your best mortgage rate!