'The first rate is often not the best rate'

Canada is gearing up for a mortgage renewal wave in the next two years, with scores of mortgages set to renew between now and the end of 2026 – in most cases, at significantly higher rates than the original contract.

A battle for that business is already well underway, with competition set to intensify after the recent decision by the national banking regulator to scrap the stress test on uninsured mortgage switches at renewal – one that advocates say will give homeowners even greater choice when renewing.

For mortgage brokers, getting out the word about the services they offer and their ability to source a wide variety of lending options, rather than the yes-or-no choice offered by banks, is a key focus heading into next year.

Mickey Khaneka, a mortgage specialist with DLC Clear Trust Mortgages, told Canadian Mortgage Professional his own team had been hard at work spreading that message across a variety of channels. “I try to do it multi-level,” he said. “We’re putting the word out in terms of COIs [centres of influence], which is real estate agents, or people who are sending us business, to let them know.

“A lot of times with a generic system, if someone has a mortgage, they put out these renewal letters and they’ll get a renewal rate in the mail. I always make it a point to let them know that this is not the best rate that they’re going to get.”

Brokers well know the benefit to a borrower of not immediately going with that first offered rate and shopping around instead. “It’s very important to pick up the phone: call people, call your mortgage guy, call people in the industry so they can at least advise you as to what the lowest rates are going at the time,” Khaneka said, “and use that rate to negotiate, whether with your own bank or another lender who’s willing to take it on.

“It’s extremely important to pick up the phone and just have those conversations so they’re not going with the first rate that’s being offered to them – because often, the first rate is not the best rate.”

Will a race ramp up among lenders for lowest rates?

While the requirement to stress test when switching to a new lender at mortgage renewal time had often been viewed as anticompetitive and a disincentive for a borrower to leave their current arrangement, its removal could potentially open the door to a flurry of moves as homeowners browse the market for better deals.

More competition would be a positive development for borrowers, brokers, and the industry as a whole, Khaneka said.

“From a bank or monoline lender standpoint – and everyone across the industry – this opens up that opportunity,” he said. “For lenders who really, truly want to win business, they’ll have to be more competitive with offers to win these mortgages.

“And at the same time, if as a bank I want to retain these clients and not have them walk out the door, I’m going to have to be more competitive now to offer the best rate in the first place or else people [will leave].”

Wider variety of borrower options to be welcomed, broker says

While a mortgage meltdown as a result of borrowers struggling to renew at much higher rates than before has yet to transpire, having a wider variety of options to choose from will be viewed as a welcome development for those Canadians who are apprehensive about renewal time.

“The internet gives us access to so much information in the palm of our hand,” Khaneka said. “So I think realistically this is just going to create a more competitive advantage for borrowers. From the lender standpoint, they’ll have to make sure that they’re being more competitive in what rates are being offered because opportunities for people to move from one lender to another are better now than they have been in the past, before these changes took effect.”

Source CMP
By Fergal McAlinden