RBC Increases Rates And the Argument for Smaller Lenders
The Royal Bank is the first of Canada’s big banks to hike rates, increasing two of its mortgages by one-fifth of a point each this morning. RBC’s posted rate for a three-year, fixed-rate mortgage has increased 0.2 percentage points to 4.05 while their special-offer rate for a five-year closed mortgage rose to 3.69 percent.
RBC is the first major commercial bank to increase their three-year mortgage rate since late January. Competitors are currently sitting at 3.95 percent. Data from the Bank of Canada shows that five-year conventional mortgages have held steady at 5.24 percent since May.
RBC’s jump could mark a shift in the mortgage market. Analysts anticipate that most of the country’s commercial lenders will follow suit in the coming days. Which leads us to the age-old question – is a major bank the best bet for a low rate mortgage? If you’re currently on the hunt for a reasonable rate, never assume that your bank has your best intentions in mind. We’ve asked the mortgage brokers at FamilyLending.ca to provide us an inside scoop on the benefits of borrowing from a smaller lender.
Is Bigger Always Better?
Mortgage lenders come in all shapes and sizes. They range from RBC, the nation’s largest, to tiny wholesale lenders and community credit unions. So, who should you trust with your biggest debt? Name recognition is a major determining factor for some borrowers, but should it be? Whether it’s a conscious decision or not, most mortgage seekers naturally gravitate to well-known lenders because they feel more secure dealing with a “big” name.
An oft-cited reason for this decision is the fear that a smaller lender might go under during the lending period. Unfortunately, there’s some validity to this point. Prime lenders (those that cater to creditworthy customers) that have folded in the past include Citizens Bank, Dundee Bank, ResMor Trust and Maple Trust. However, it’s worth noting that borrowers aren’t required to pay back their mortgage early just because a lender folds. In reality, when a prime lender folds, the mortgage is simply shifted to a different lender and the borrower is protected. The vast majority of second- and third-tier lenders get their funding from larger financial institutions as is. If the smaller lender were to close, this institute would step in and take on the agreement.
Remember to Shop Around at Renewal
When a smaller lender sells your mortgage to another party, nothing will essentially change for you. You’ll continue to pay the same rates, albeit to a different company. The new lender is require to honour your best rate mortgage based on the terms of your previous contract.
The one thing that will change will be the renewal offer that you receive at maturity. Your new mortgage holder will be the one to make the offer to you. As such, it’s worth taking the time to talk to you mortgage broker and shop around for the best available mortgage renewal offer.
At the end of the day, if you’re interested in scoring the best rate possible, you need to be open to working with a smaller lender via your mortgage agent. An experienced mortgage broker will help you navigate contract restrictions, including penalty calculations, porting restrictions and refinancing limitations, in order to ensure that you secure the best possible rate.
What’s more, the chances of a smaller lender disappearing completely is very low. It’s certainly not a reason to rule out a great deal on your mortgage.