Finances & Real Estate BMO mortgage cut may prompt price war

lumix · Mar 4, 2013

BMO's move to cut its benchmark five-year mortgage rate to under three per cent could spur other banks to follow suit in the lead-up to the busy spring home-buying season.

Over the weekend, Bank of Montreal cut its five-year fixed rate by 10 basis points, from 3.09 to 2.99 per cent. That's the lowest the rate the bank has offered for a posted rate since the start of 2012.

March 4, 2013

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dummy · Mar 5, 2013

umm, price war -- hmmm, are you a realtor? yeah, i thought so.

people have to be truly retarded to pay the outrageous prices in vancouver. just cuz the rates are low doesn't justify paying a million dollars for a shack!! think people, think!

lumix · Mar 5, 2013

Don’t rush into housing market just for a low mortgage rate

ROB CARRICK
The Globe and Mail
Mar. 04 2013

Oh, it’s a great rate. There’s next to no chance over the next five years that you’ll kick yourself for having chosen to lock in such a historically low cost of borrowing. But the low-rate argument for getting into the housing market for the first time just isn’t compelling enough to jump in right now.

For one thing, no one expects rates to move higher any time soon. The Canadian economy, not to mention the global economy, simply can’t handle higher rates right now. They’d smother growth.

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lumix · Mar 5, 2013

Are you getting the best mortgage rate? 5 questions to ask your broker
Robert McLister
Special to The Globe and Mail
Mar. 04 2013

One of the biggest challenges some brokers face is the lure of letting compensation dictate their recommendations. Brokers are usually paid by the lender for referring customers and processing applications. But that compensation varies, with some lenders and mortgage types paying more than others. For a minority of brokers, the prospect of a higher payday is irresistible.

Generally, the longer the mortgage term, the more a broker gets paid. One-year terms, for example, pay 25 to 50 per cent less than five-year terms. An unethical broker may consider that a disincentive and rarely sell a one-year term, even if it’s the best fit for a client.

This, of course, sparks concerns about how often unsuitable mortgages are recommended. It’s one example of why forward-thinking regulators in Ontario, Saskatchewan and Nova Scotia require that brokers confirm suitability when recommending a mortgage. This suitability legislation, which doesn’t apply to mortgage salespeople at banks, is a consumer protection that should be adopted in every province of the country.

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One of the biggest conflicts of interest in the broker world is something called “scaled pricing.” That’s where a lender offers two rates for the same mortgage: a competitive rate with fair compensation to the broker, and a higher less-competitive rate which pays the broker extra.

Some brokers sell those above-market rates and the client is none the wiser. In certain cases, it may be justified if the borrower has qualification challenges that demand an unusual amount of effort or expertise. But a less-fiduciary broker may simply pocket the extra commission.

Step one is asking this question point blank: “Is the rate you’re quoting me the lowest rate for that term on that lender’s broker rate sheet?” If you have any doubt, ask another broker for a second opinion.

Step two is knowing the most competitive rates in the market. Compare a broker’s rates against those you find online. Just make sure that the rates you’ve found include similar privileges, the same or fewer restrictions, comparable service/advice, like qualifications and the same rate guarantee period. If a broker then tries to sell you a materially higher rate – e.g., 3.14 per cent instead of 2.99 per cent – he or she better have a good reason.

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Here are five such questions to remember:

1. How long have you been in the business? (Ideally, at least two to five years)

2. How many lenders does your team have “top-tier status” with? (Preferably six to seven or more)

3. Is the rate you’re quoting me the lowest rate for that term on that lender’s broker rate sheet? (If not, why not?)

4. How much volume did your team do last year? (Ideally $100-million-plus)

5. Do you do over 50 per cent of your business with one lender? (If so, why?)

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Finances & Real Estate BMO mortgage cut may prompt price war

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