canadian mortgage rates


#Mortgage rate war heats up as smaller lenders offer deep discounts – The Globe and Mail

Less than a month after the Bank of Canada’s surprise interest-rate cut, a renewed mortgage-rate war is in full swing. But, this time, it’s being driven by an unlikely source: smaller lenders.

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Only weeks after the country’s banks began offering eye-popping specials such as 2.84-per-cent five-year fixed mortgages, the average discounted five-year rate offered by the Big Six banks now sits around 2.79 per cent, driving the spread between the bank’s posted rates and the rates that customers actually pay to levels not seen since 2012.

But in a cutthroat move to grow their share of mortgage originations, many smaller lenders and brokers are offering deep discounts off the banks’ already low rates. Several online brokerages are offering variable mortgages with rates below 2 per cent and five-year fixed mortgages as low as 2.39 per cent.

The battle for customers comes after the central bank dropped its benchmark rate last month to 0.75 per cent – and amid speculation of deeper cuts in the months ahead.

Concerns are mounting that low mortgage rates will add fuel to an overheated housing market and add pressure to an economy struggling with rising household debt.Earlier this month, North Peace Savings and Credit Union, a small credit union in extreme northeastern B.C. began advertising a seven-year fixed mortgage at 2.99 per cent, well below comparable offerings from major lenders for the same mortgage term.

The credit union can afford to offer such an attractive long-term rate in part because few people actually take seven-year mortgages and the company’s primary business is commercial lending to the region’s natural gas industry, North Peace chief executive Mitchel Chilcott said.

But the company, whose mortgages are entirely self-funded through deposits from its 12,000 customers, also opts to earn less profit and pay out fewer dividends in order to drive rates down.

In the past, members received cheques for $1,000 roughly 14 months after the start of every fiscal year. But about five years ago the company gradually began shifting toward boosting the rates on its high-interest savings accounts and lowering them on its mortgages.

“For most homeowners, having a $90 or $100 lower mortgage payment a month was a lot more meaningful and impactful than maybe getting money back 14 months later,” Mr. Chilcott said.

Other credit unions have followed a similar model, which has helped them grab more market share away from the banks. Banks lost more than 2 per cent of their share of the mortgage business last year, according to banking industry consultant David McVay, with some of that going to credit unions thanks to increased price competition.

The rate war is even more intense among mortgage brokers, many of whom are shifting away from the traditional full-service model that saw brokers spending hours working with clients to select the best mortgage and earning hefty commissions. These days, more borrowers are turning to online and “self-service” brokerages that compete on volume, offering less personalized service and sacrificing some of the commissions they earn from lenders in order to discount rates even further.

Not everyone is a fan of the model. Some are worried that with interest rates already so low, brokers are having to dig deep into their commissions to offer meaningful discounts, a model that some brokers argue could threaten the industry as a whole.

“The majority of people don’t like what we’re doing and it’s a troublesome thing for us to digest because ultimately it’s the best for the consumer,” said Jeff Mark, co-founder of Spin Mortgage, an 18-month-old online brokerage that is advertising a five-year fixed rate at 2.49 per cent, well below the typical bank rate, by sacrificing some of its commissions. “We make less money per deal. I don’t know how that isn’t a good thing for the market.”

Brokers would have to give up roughly 40 per cent of their commission from a typical five-year fixed rate mortgage just to offer a discount of 10 basis points, equal to a tenth of a percentage point, off the interest rate, writes broker Mark Kerzner in Canada Mortgage Trends. That’s a huge sacrifice to offer borrowers a small savings.

“It’s becoming hypercompetitive and there is only so much you can discount a rate before you make nothing,” said Robert McLister, founder intelliMortgageInc, a low-rate online DIY brokerage. “We’re rapidly, in my opinion, approaching a point where at the very deep-discount end of the market there’s not much left to give if you’re a mortgage originator and you’re considering giving up your commission to offer a better rate.”

Even so, the industry seems to be moving toward more discounting. Rising house prices mean borrowers have become hypersensitive to low rates and the advent of online rate comparison sites has only heightened the competition. Mr. Mark said the days when brokers spend hours in meetings with clients and then steer them toward mortgages that offer the most lucrative commission are rapidly becoming a thing of the past.

“The competition is so fierce, people are so savvy and there’s so much information online,” he said. “I couldn’t imagine telling a client today that their variable rate is 2.3 per cent and seeing the signed paperwork back the next day. That would blow my mind. I would feel like I was pulling the wool over their eyes.”


reverse mortgage lenders


#For Reverse Mortgages, Try Smaller Banks

With two of the nation’s largest banks out of the reverse mortgage business, many homeowners who are cash-poor and equity-rich wonder if they can still get reverse mortgages.

The short answer is yes. They’ll just have to look beyond the branch next door, says Jim Cory, CEO of Legacy Reverse Mortgage in San Diego.

“It is not difficult to find a reverse mortgage lender or get a reverse mortgage at all,” he says. “But they are not in the big banks anymore.”

Wells Fargo abruptly stopped offering reverse mortgages in late June. In February, Bank of America pulled out of the reverse mortgage market. A month earlier, Financial Freedom exited the business. Together, the three lenders had accounted for nearly half of reverse mortgage originations.

More On Reverse Mortgages:

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Reverse mortgages offer homeowners who are 62 or older the opportunity to convert their home equity into a loan that doesn’t require monthly payments. In reverse mortgages, lenders don’t get paid until the homeowner dies or sells the house, but owners are obligated to keep property taxes and insurance current or the lender can foreclose. Most reverse mortgages are insured by the Federal Housing Administration under a program known as the Home Equity Conversion Mortgage, or HECM.

Until recently, Bank of America and Wells Fargo dominated the reverse mortgage market. More than 15,600 of the 61,741 reverse mortgages endorsed by FHA in the first nine months of this fiscal year came from Wells Fargo. And more than 5,600 were from Bank of America, even though the lender stopped taking applications for reverse mortgage at the end of February.

Why banks wanted out of reverse mortgages

Bank of America says it quit offering the loans because reverse mortgages are not part of its core business. Wells Fargo says its decision was based on falling home values and challenges in assessing the homeowner’s ability to keep up with taxes and insurance obligations. Industry observers say the lenders quit because foreclosing on senior citizens hurts the banks’ reputation. And given that reverse mortgages represented a small portion of the lenders’ business, their reverse mortgage operations were not worth the risk, time, money and effort they had to spend to keep up the operations and comply with regulations.

Lenders still offer reverse mortgages

Despite the latest departures, many lenders still offer reverse mortgages and they have had no problem filling the gap since the top players got out of the game, Cory says.

“It’s a competitive industry, and there are plenty of other lenders that have picked up the additional volume,” he says.