In January 2019, RBC dropped its 5-year fixed-term mortgage rate by 0.15 points to 3.74%. When they did so, every major news outlet in the country picked up the announcement. And the same thing happens when any of the rest of the Big 6—TD, BMO, Scotiabank, CIBC, and National Bank of Canada—do something similar.
The media report on this because these 6 banks control 90% of the Canadian mortgage market. That’s right. Out of every 100 mortgages issued in this country, 90 are done through only 6 lending institutions.
Here’s the thing though: these 6 banks never have the lowest mortgage rates. You know who does? Smaller lenders. The ones who cover the other 10% of the market. And they never make the news.
Smaller lenders drop rates first
Not only do smaller lenders often have lower rates, they also drop their rates before the big banks do.
For example, this past November, it cost lenders roughly 2.3% to borrow a 5-year Government of Canada bond. Banks borrow bonds to ensure they always have enough capital to lend to their customers. They then lend money at a greater rate than what it costs them to borrow. It’s how they make profit.
At the end of February 2019, the bond rate was at about 1.8%. That means it costs lenders less to borrow money than it did 3 months previous. Which means the rates they charge homeowners should go down, too, right? Well, for the Big 6, it didn’t mean that at all. Despite the bond rate dropping virtually consistently since November, the Big 6 only recently started lowering their mortgage rates. Keeping their mortgage rates high as the bond rate drops maximizes how much profit they can make.
For them, it‘s more important to make a profit than it is to get you a lower rate. And when you own 90% of the market, you can afford to do that.
Smaller lenders, on the other hand, have been lowering their rates for nearly 2 months.
Smaller lenders already have low rates
Even though smaller lenders drop their rates sooner, which benefits homeowners, they already have lower rates than the Big 6 to start with. Take the RBC rate we mentioned above. As of this writing, that’s still the rate for a 5-year fixed mortgage with RBC. According to our MOPOLO mobile app, we have access to 3.64% on a 5-year fixed mortgage, 3.49% on a high ratio rate.
That could be the difference of $100 on your monthly mortgage payment, compared to if you went with RBC (or any of the Big 6, really). And $100 might not seem like much, but over the course of a 25-year mortgage, it could add up to tens of thousands of dollars.
If your mortgage is up for renewal soon, don’t automatically renew with your bank. Talk to one of our mortgage brokers, and we’ll find you the best rate available for you. Remember, we will never charge you for our services. We work for you.