Canada's Biggest Bank Sounds Alarm On Mortgage Rate Wars

Canada's biggest bank is acknowledging that there was a rate war in the Canadian mortgage space and who is waging it is Up For Debate but one thing is clear that the biggest bank in Canada is definitely concerned about losing market share both to Brokers and both to one other big bank that did something that is absolutely genius 20 years ago that is costing RBC a significant amount of its market share but before we get into all the details my name is l Maas if you want the latest Canadian Financial and real estate news this is the place for you so do me a favor hit the Subscribe button and hit the like button so more people like you can see this video and by the way if you're watching this video it's highly likely that you're potentially going to be in the market for a mortgage in the next 6 to 12 to 18 months whether that's a brand new mortgage or renewing and regardless of what your situation is make sure you watch this video but if you're renewing especially make sure you watch this video because there's some important tidbits from the article I'm about to share that is hugely important and by the way if you are looking to get into the market you can go to mortgage cs.cg secrets that talks about a lot of the things are talked about in this article about how to get the best mortgage and the best rate without getting screwed or you can also get my online course which has a little bit more up-to-date detail in it at rs.c which will give you all the information you need to battle with the banks or your mortgage broker or whoever it is and get the lowest rate while also understanding what you're getting and make sure that you don't get screwed like some of the people that are going to be talked about in this article okay so let's get into it let's discuss what's going on here this is an article from last Friday now typically in the news cycle if you want something to be news you put it out on Monday or Tuesday if you want to bury it you put it out on a Friday and this article was put out on the Friday before a long weekend and really didn't get picked up in the mainstream media but it is such an important article with very very important information so make sure that you pay attention to what's going on here and without further Ado I'm going to dip in and I'm going to show you the actual article and we're going to discuss the rate war that is being waged in Canada so let's jump in here and take a look at the article the title of the article is RBC Canada's mortgage lending giant admits that a rate war is being waged and the sub headline in an urgent bid to preserve market share banks are pulling out all the stops and this is absolutely true in a market where today we're seeing 40 to 50% less real estate transactions Banks are definitely pulling up their sleeves and fighting for every single mortgage which is a great thing for the consumer but it's also important that the consumer understands what you actually need to do to both get a really good rate and also not get screwed because there are some things like everything else in life that come along with getting the best rate and paying a lower price that you give up in exchange so let's take a look at what's going on here and I'm going to go through and I'm just going to show you the details of this article I've highlighted certain pieces so during a conference call yesterday Dave McKay chief executive of Royal Bank of Canada yesterday being of course Thursday the country's biggest mortgage lender confessed that RBC is battling through what he called historic and intense competition in fact rbc's Mortgage business is earning just a third of what it used to earn he explained now there's a lot of reasons for this lower cost or higher cost of funding sorry lower rates less margin and also a loss of market share both from the perspective of how much how how many mortgages they're doing and how many new mortgages that they're getting and like I said in the intro here one of the big Banks did something that was absolutely genius 20 years ago that is definitely eating into their market share in fact you can see throughout Canada at various times there are actual advertising campaigns put out by RBC that allude to one other Banks mortgage features and why RBC is a better option now this is kind of ironic because when you look at the actual mortgage features that come with an RBC mortgage and you compare them to the other five banks RBC actually comes in last with respect to the features the penalties and everything else in fact they're the only major bank that on their standard mortgage only allows you to pay off 10% per year without penalty and increase your mortgage payment by 10% per year most of the other banks are in the 15 to 20% range and most people tend to think that these prepayment privileges aren't really useful because who's going to pay off 10 or 15 or 20% of their mortgage every every single year and have the extra cash to do that but when it comes to penalty which we'll talk about in a second because this article touches on penalty issues it can be highly beneficial to have those prepayment privileges available to you in order to reduce the penalty amounts now as we go a little bit further on in this article he goes on to mention that our mortgage business is seeing low interest margins driven by a volatile cost of funds and competitive pricing pressures because yes every single Bank every single non-bank lender out there is current pricing their mortgages more competitively because there is less market share to be had and they're aggressively trying to maintain their numbers and RVC here is absolutely right this is exactly what's going on but there's more in an urgent bid to preserve market share amid elevated interest rates high debt loads and feeble real estate activity banks are pulling out all the stops seemingly every mortgage broker I talked to recounts Tales of customers being quoted astonishingly low rates by their Banks now what he's referring to here is on renewal and personally we just went through this with our major Bank lender and yes there's a specific bank that I would only choose for my mortgage and that is where our mortgage is it's Scotia Bank and Scotia Bank is absolutely the best lender of all the big Banks when it comes to getting a mortgage because they've got the best prepayment features they've got the best prepayment privileges they've got lots of options and very rarely although they do on occasion every bank has a discount low value mortgage but very rarely do they offer that product and on our personal mortgage recently on renewal we were offered rates that as Brokers we didn't even have access to they were significantly better than anything else that was out there on the market and that is because of the bank's desires whether it is Scotia Bank TD RBC CIBC or bimo to maintain the existing clients that they have they don't want to lose them to other Banks and right now what that means is if they're in a competitive situation some of the banks are willing to even lose money on a mortgage in order to keep it now the article goes on to mention that the average conventional publish rate on a three-year fixed mortgage is 5.58% that's a cringeworthy deal compared to the best nationally advertised offer on an uninsured three-year which is 4.84% from Pine mortgage now most Brokers have access to rates that are similar to this and if you go to a broker that you trust they can go out and they can shop for you and they can find the lowest rates and if there's a rate out there they can typically figure out where it is and try to get access to that mortgage on your behalf but the one thing you have to remember about mortgage brokers versus Banks and as much as mortgage brokers are an industry that is sometimes hated they're also regulated and they're regulated to a greater degree with respect to protecting the client than the banks are which means that if you're dealing with the mortgage broker in most provinces they actually have a leg legal obligation to act on your behalf and do what is in your best interest the banks on the other hand every single emplo employee that works for a bank is regulated in such a way that they have to do what is in in the best interest of the shareholders which means that if they can charge you a higher interest rate they will absolutely do it because their obligation is to get the shareholders more profits more dividends and all of those things and as we go through the article a little bit here you'll start to see a little bit more about that so the article now goes on to talk about picture an unsuspecting first-time buyer trusting their lender and signing up for an inflated rate like 5.58% with the average first timer getting a $410,000 mortgage that blend would cost them $883 over 36 months but this isn't the icing on the cake it gets better some special offers are Bare Bones mortgages that trap you without porting or refinancing options this may not sound like a big deal but a broker I work with recently shared a cautionary tail that resonated one of his customers was offered a value mortgage at Renewal by his bank the borrower simply took the deal because he didn't have to reapply and the rate was a little lower than what he saw in line fast forward two years and the guy needed to refinance early the catch the value mortgage he agreed to didn't allow for refinances without a heavy penalty the kicker was he could have chosen a slightly pricier option from the same lender that permitted penalty-free refinances in the end he saved $2,100 on interest over two years only to be slammed with a $23,000 penalty so in other words in order to save 0.1 or 2% he ended up having to pay a 20 $3,000 penalty costing him almost $21,000 if he would have just chosen the right mortgage to begin with and when we talk to our clients about choosing a mortgage we always talk about the three piece you want to First select the right product does it have the right prepayment privileges does it have the right penalty calculations does it have the ability to do things like refinance or Port the mortgage then second you want to look at the penalty is the penalty going to be astronomical and by the way if you're getting your mortgage from a b lender and I don't mean the be lenders like the banks like to talk about I mean be lenders as in the banks you're going to have a significantly higher penalty on a 5-year fixed mortgage than you would a lender like First National mcap or CMLS which by the way are all non-bank lenders they can't skate on their reputation they can't skate on their Big Marketing budgets they can't go out and create a national advertising campaign talking about their competitors's products because they don't have the budget to do that but they're typically funded by big Bank lenders and because they don't have that same reputational ability and the same advertising budgets they actually have to have better products otherwise they wouldn't exist and one of the key places where they have better products is on their penalties so when you're getting a mortgage you don't want to just go blindly into your bank and take that 5.58% and have it cost you an extra $88,000 you want to make sure that you find a good broker and if you don't have a good broker and you want a great broker feel free to reach out to me via the links in the description below we can hook you up with my team which operates in BC Alberta Saskatchewan and Ontario and if if you're looking in a province that isn't one of those four provinces we can definitely hook you up with a broker that we trust and that we know will do what's in your best interest now round out this article ml who wrote this article talks about chasing deals borrowers typically Save More by choosing mortgages with flexible contracts than those with small upfront rate advantages here's a golden rule if you're eyeballing two rates and one's tied to Hefty prepayment fees typ portability or refinance restrictions avoid it like a telemarketer if the savings is less than 10 to basis points so 0.1 to 0.15% now I'd go one step further here and I'd go 0.1 to. 2% and by the way keep mind that 0.1 to 0.2% is typically a cup of coffee a week or depending on how big the mortgage is it might be a Starbucks instead of a Tim Hortons or it might be a nice glass of wine every single week so that's the difference we're talking about between 0.1 and 0.2% but if you've got these major restrictions it could end up costing you $21,000 or $50,000 or over the life that your mortgage if you just take your bank's word for it and you basically renew five times with them you could end up spending hundreds of thousands of dollars more than what you actually need to so getting a mortgage is no laughing matter you want to make sure that you have somebody who is advocating on your behalf somebody who has seen it all oh and by the way there's this one thing that I talked about that TD Bank did 20 years ago that was absolutely brilliant do you remember the will give you a shuffle campaign an iPod Shuffle if you open up an account that single move at least in my opinion is what is causing causing RBC to lose a significant amount of market share to TD because all of those people that were in their teens in their early 20s 20 years ago who went and got those iPod shuffles now use TD as their primary bank which means that now those people are coming into the home buying age and they are now choosing TD as their mortgage lender by the way I don't think TD has the best mortgage product out there I think they're one of the best I think Scotia Bank is better if you're going to get it from a big bank but I think that non-bank lenders are definitely way better as long as you don't need a niche product like a line of credit or some other sort of product that isn't offered by the non-bank lenders but if you're just getting a standard mortgage which is 95% of people well getting it from A non-bank lender is definitely the best pick and by the way RBC is definitely going to continue to lose market share over the next couple of years because as the Baby Boomers start to sell their houses or maybe pass away and those inheritances start making their way to the younger population well a lot of those younger people have those bank accounts at TD Canada Trust well it's not TD Canada Trust anymore it's now TD Bank it was TD Canada Trust back then and they're going to move more of their money to that institution because of something that they did 20 years ago that is now blindsiding Canada's biggest bank and putting their position as Canada's biggest Bank at risk oh and by the way if you want to know more about what's going on in Canada's housing market make sure you check out this video right here