Monoline lenders or Bank mortgages?

What is better? Monoline lenders or Bank mortgages?

Every time one of the main Canadian banks changes their mortgage rates, it makes news. For example, when RBC dropped its five-year fixed-term mortgage rate by 0.15 percentage points (or 15 basis points) to 3.74 per cent every main news outlet in Canada picked it up. However, the big banks do not always offer the lowest mortgage rates in the market and those are the ones you want to find.

Canadian banks have a 90-per-cent strong hold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — frequently cheaper — options out there. There’s a whole industry of smaller, more competitive mortgage lenders and brokers who never make headlines. They are often just as established, they’re completely just as dependable, and they’re often times more affordable. So why do we stay with the big banks? Complacency and lack of knowledge are big reasons.

Brokers and smaller lenders often drop their rates first. Here’s how mortgage rates work: lenders (whether large banks or small lenders) lend money to home buyers in the form of mortgages. Even big banks have to borrow money at times to ensure they can lend money out to meet requirements, and they always borrow at a lower rate than they lend it out at. That’s how they make a profit.

Beginning this past autumn, the rates that lenders were borrowing at began to drop. In November 2018, a five-year government of Canada bond was costing lenders 2.5 per cent in interest — it’s now costing them around 1.75 per cent. That reflects the cost of lending in the bond market, which helps influence fixed-rate mortgages. The big banks are only recently starting to pass these savings onto Canadian consumers. Smaller lenders and brokers began lowering their mortgage rates ahead of the big banks in January. Yet, you didn’t hear about those rate changes, because small lenders don’t make the news. Brokers and smaller lenders had lower rates to begin with.

Finally, when you decide to get a mortgage, don’t simply walk into a bank and take the first mortgage rate you are offered. Shop around and compare — use a broker to help you find the best rates out there. We all compare flights and hotels when we’re taking a trip. We should start doing the same for financial products. After all, the money you can save on a vacation pales in comparison to what you can save on a mortgage.

Call our office today at 250 753 2242 and we can help with all of your mortgage questions!

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We are open Monday to Friday from 9 am to 5 pm. Kevin Decker can also be reached after hours at 250 619 2262 and Jason Barudin can be reached at 250 668 2203.