What is the “Best Mortgage Rate”?
Posted on Nov 20, 2013 in Mortgage Market Updates and NewsRob McLister, CMT
It’s not synonymous with the “lowest mortgage rate.”
The best mortgage rate corresponds to the mortgage and advice that saves (and in some cases makes) you the most amount of money long-term.
Mortgage professionals routinely advise, “It’s not all about the rate.” To some, that sounds like evil sales-speak meant to boost commissions. The reality is that mortgage flexibility, contract restrictions and advice all have a definitive impact on borrowing costs. And most people don’t discover how much impact until after their mortgage closes.
That said, consumers are obliged to negotiate the very best deal they can. Three years ago, we asked ourselves, what kind of mortgage comparison website would we want if we were shopping for a mortgage ourselves? We thought up RateSpy.com.
RateSpy’s edge is data, lots and lots of rate data — more so than most other Canadian rate comparison sites combined.
Now, why on earth would someone need access to 3,000 mortgage rates and 300+ lenders, you ask? It boils down to probability.
At any given time, different mortgage providers are motivated to offer more heavily discounted rates. They may have:
• Surplus liquidity (e.g., a credit union with excess deposits),
• A need to replace assets in securitization programs (which is why we see big discounts on mortgages with odd terms, like 3.4 years), or
• Internal volume targets that haven’t been met, thus encouraging more competitive pricing.
By definition, the more lenders and brokers one has to compare, the higher the probability of finding a lender motivated to discount below the market.
Of course, once you find a low-rate provider, that doesn’t mean its rate entails the lowest borrowing costs. Asking the right questions is mandatory to ensure the mortgage balances renewal risk with interest savings, and lets you make changes down the road—penalty free. This mortgage rate & features checklist can serve as a guide in that respect.
For these reasons, the interest rate alone can be a misleading number. If your lender or mortgage broker is quoting you a rate 10-15 basis points higher than what you’ve found online, it means nothing until you compare the features, restrictions and speed/quality of service from both providers
Mortgage shoppers are, and will continue, flocking to rate comparison websites. But the information on these sites is vastly inadequate at the moment. Why, for example, don’t rate comparison sites speak to the penalty facing consumers if they break the mortgage early? Variations in penalty calculations can, and do, cost borrowers thousands more than small rate differences.
We have a responsibility to help consumers find the best overall deal, not just the best rate. The best deal factors in things like term selection, penalty cost, refinance restrictions, porting flexibility, advice on properly structuring an application, advice on building equity and so on.
Every Canadian rate comparison site I’ve seen underperforms in these areas. Even ours...for now. Our mission is to address these information deficiencies so consumers can identify the right combination of rate savings, flexibility and advice in an objective forum with no sales pressure.
Thereafter, we have to make it easier for folks to find competent mortgage professionals for a second opinion. Think about it. If you don’t have a trusted referral, where do you look to find a great broker or banker? How do you know the person you’re calling has the tenure, experience, qualifications and competitiveness to serve you best? Most existing advisor directories help you screen by little more than company, province or city.
Expect mortgage comparison sites to significantly evolve along these lines in 2014.
Sidebar: Rate comparison sites, in their present form, cater only to AAA fully-qualifying clients. Subprime, business-for-self and investor clients are a whole different conversation. There is currently no good mortgage comparison site for these customers, making knowledgeable mortgage advisors even more essential.