Low mortgage rates may be masking high fees

Lenders are lowering fees to stay competitive ─ but it may cost you



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low mortgage rates

(Getty Images/Juan Monino)

TORONTO – Online comparison shopping is changing everything from how we buy a new television set to how we select a mortgage, and it’s causing some mortgage lenders to get creative in order to compete.

“Lenders are stripping away features of mortgages to get their rates lower,” says Steve Pipkey, co-founder of Spin Mortgage.

Consumers have always been keen on scoring a low mortgage rate, but the ease with which they can comparison shop via their computers, smartphones and tablets has created an even greater fixation on the headline number, above all else.

“The majority of our phone calls are about rates these days, whereas before it might have been more about, ‘How can I get my money out fast?’ or ‘What’s the quickest way to refinance my home?’” says Bob Aggarwal, president of Canadalend.com.

Brokers say the push for low rates is not a bad thing, but it has led to some confusion. While mortgage contracts used to be fairly standardized, many of them now contain various conditions and clauses, and in some cases it’s hard for consumers to decipher the difference between various products.

“If you’re online trying to figure out what the rates are and why, good luck to you,” says Pipkey. “Some banks and brokers are better at disclosing the fine print than others.”

In some instances, in exchange for a lower rate, lenders are adding steeper penalties for paying off a mortgage early. By chasing those five extra basis points, buyers put themselves at risk of having to pay thousands more in penalties later on down the road, says Pipkey.

Prepayment privileges also allow borrowers to pay more than their regular mortgage payments without penalty in order to get out of debt faster. But some lenders may reduce how much money borrowers can repay in exchange for a rate reduction.

Pipkey says it’s not surprising that lenders are lowering their rates given how competitive the mortgage market has become.

“Mortgage originations are down and lenders are fighting for market share in the face of compressing margins,” he said.

Bill Whyte, senior vice-president and chief of member services at Meridian Credit Union, says it’s hard to attract clients unless you offer a competitive rate that will grab the attention of borrowers.

The credit union recently offered, for a limited time, an 18-month mortgage for an eye-grabbing 1.49 per cent.

“To our knowledge, when we offered it, 1.49 was the lowest in Canadian history,” said Whyte.

“It drove a ton of traffic to our contact centre, our website and our branches.”

However, many borrowers who phoned to discuss the offer ended up going for a five-year mortgage at a slightly higher rate instead, he said.

“In a lot of cases the five-year rate fit them better, and some of that initial interest in 18-month was diverted to five-year,” he said, adding that many Canadian borrowers are looking to lock in at today’s rock-bottom interest rates before they climb higher.

6 comments on “Low mortgage rates may be masking high fees

  1. I agree that these lower mortgage rates and competition is good for the consumer in the short run but what is concerning is the future affordability of home ownership and the rising costs of this.

    People don’t realize all the costs of property taxes plus water, electricity, heating, insurance, maintenance and repairs, transfer taxes, real estate commission, H.S.T. etc. These costs all could be easily 2.5 to 3 times in 25 years when the mortgage is paid off.

    Mortgage payments, principal and interest are just one of many cost pressures. This is not even pointing out credit card debt payments, car payments, car insurance, car repairs, maintenance, food, clothing, medical and other general cost of living with inflation.


  2. Did Mr. Whyte just admit this low offer was a Bait and Switch. Here is a really low-interest rate, but only for 18 months, maybe you might be more interested in the 5 year term at the mortgage rate all other institutions are offering. ” One industry where the bait and switch strategy is widely used is the mortgage market – companies often tease customers with low mortgage rates but in reality most cannot qualify for these rates. ” quote from Investorwords.


    • It wasn’t a ‘Bait and Switch’, that refers to the product not being there when people want it. In this case the produce was there but people decided that a long term offer was better for them. There was nothing saying that they could not get the 18 month offer (other than standard approval). It pays to shop around and read the fine print. I just renewed a mortgage for prime minus 0.8 with a different company when my current back sent me a letter offering only prime.


  3. I would take 400,000 at 1.5% for 18 months minus 5 years at 3.2%! That would save me $6800 plus or minus/ year… Them use my new 10,000 TFSA availability and put what I save in this case $566./month on a 6%/year REIT and voila! I forgot coumpound!, perhap a nice bottle of wine after few month! Hum…


  4. Nice picture.
    Where can I get a 30-year fixed mortgage in Canada? Nowhere!
    Nothing like adding to the confusion when writing about the confusion.
    Sloppy, lazy, “journalism”.


  5. Good article with common sense points clearly stated. Does anyone have any stats of the percentage of mortgagors who avail themselves to such perks as prepayment and/or interim extra payment against principal privileges? I’d be surprised if the percentage figure exceeds 10% of mortgagors who have that privilege provided contractually in their mortgage.


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