Mortgages from Canada’s Big Six banks were consistently more expensive than home loans from smaller lenders in 2018, according to data compiled by LowestRates.ca.
RBC Financial Group (RY.TO), TD Bank Financial Group (TD.TO), Bank of Montreal (BMO.TO), Bank of Nova Scotia (BNS.TO), Canadian Imperial Bank of Commerce (CM.TO), and National Bank of Canada (NA.TO) account for the lion’s share Canada’s mortgage market.
A report by Mortgage Professionals Canada released in January found 62 per cent of mortgages obtained by recent homebuyers came from banks, compared to 28 per cent from brokers, five per cent from credit unions, three per cent from life insurance and trust companies, and two per cent from “other” sources.
“The big banks never offer the lowest posted rates on the market, but Canadians aren’t
spending enough time researching rates before signing their mortgages. That’s potentially
costing them thousands of dollars a year,” LowestRates.ca CEO and co-founder Justin Thouin wrote in a news release.
The financial product comparison website found the lowest big bank rates trended consistently higher than the lowest rates overall last year. The rate on a five-year closed fixed-rate mortgage at the big banks climbed to an average of 3.69 per cent in December, compared to the 3.32 per cent overall average.
LowestRates.ca highlights the example of RBC’s five-year fixed-rate mortgage, which was lowered to 3.74 per cent last month. Assuming a 20 per cent down payment to avoid CMHC insurance on a $500,000 25-year mortgage, the homeowner would pay $2,560 per month. The same buyer would lower their monthly payments to $2,426 with the best currently available five-year fixed rate (3.23 per cent), saving $40,200 over the 25-year term.
Larger lenders are less sensitive to interest rate changes on the money they borrow to satisfy mortgage demand, and therefore less inclined to compete with smaller rivals by offering lower rates.
“Brokers and smaller lenders often drop their rates first to be more competitive, and banks are
slower to implement changes because they know they own the market,” Thouin wrote. “This will only change when Canadians realize they’re being overcharged and begin to shift away from the banks, and that will only happen as we increase awareness about the alternative market. The best deals are found online, not in your family’s legacy bank branch.”