Banks have no incentive to offer the best mortgage rate!

[Gsxrboy]

I have been wanting to post this for a while now, but I needed confirmation from different people who are in the industry. I spoke to them about mortgage rates and why is it that they never offer you the best price, especially if you are a long time customer. Apparently the higher ups do not want customers knowing they can get a better rate, they want customers to simply renew with what they have been offered without a negotiation. Once you start shopping around, you will realize that the "Best rate" a bank offers pales in comparison to what is available from other companies. I asked these friends of mine if it matters if a customer has large sums of money in the bank, and are a good customer, they all replied with "It doesn't matter", what matters is trying to keep your money at the bank, the only time they are able to either match or beat a price is by shopping around and showing them the better rates. Of course, they are limited to what they can match or beat, so if you find a ridiculous price somewhere, they won't be able to touch it. It seems as well that they could care less if you been a customer for 20 years, with various investments with them, the only time they will take notice of you is when you have around $500,000 plus in investments. They offer these clients perks that are not available to the general public, free dinners, meetings with investment professionals etc. However, they are still unable to simply give these customers a good rate in the beginning either.

One of the biggest scams that is currently out there is the cash back mortgage, some offer a percentage back from the mortgage you are getting. The people I spoke to wouldn't touch it if they needed a mortgage, the rates are higher to offer you the cash back, and what is worse, is most people use it as a vacation fund or simply spend it, they advise to simply put it back into the mortgage, that way you are getting a better rate essentially by reducing the mortgage amount.

So in the end, please shop around, get the rates you are being offered on paper and show this as proof of the rate that is offered. Without proof, many banks cannot negotiate a better rate with their superiors.

Mortgage Queen can elaborate on this as well.

[super807]

I would never approach my bank for a mortgage rate as I know that is not where I will get the best rate.

A mortgage broker will get you the best rate. The mortgage broker is working for you, and is getting paid by the institution with which you sign the mortgage.

The bank will never offer you the best rate. The bank isn't working for you, it is looking out for its own interests. Doesn't matter if it is the bank with which you have your day-to-day banking, or the bank that holds your mortgage. Doesn't matter if you are a new customer of have been with them for 25 years.

When we bought our first house, we used a mortgage broker. She was great. When we sold two years later, we still had three years left on our term. We contacted our mortgage broker again, she looked around for us and then advised us to port our mortgage as the rate we had (0.9% below prime on a variable rate mortgage) was no longer available and when she did the math, porting was our best option. That was five years ago.

We renewed our mortgage this spring. We looked at what the best rates available from mortgage brokers was and knew what we were targeting. When the company with whom we had our mortgage offered us renewal terms, they were terrible. My husband called the contact, told him what type of mortgage we wanted, what rate we wanted, etc. Otherwise we would go elsewhere. Two days later, he called us back and offered us exactly what we wanted. We renewed with them instead of using a broker because we were comfortable using them again and we had the best rate we knew we would get.

[MortgageMaster]

The cashback can be good if it is immediately applied to the mortgage principal or used for renovations on the home. However, one drawback is if you break your mortgage before the end of term you will pay the interest penalty plus you will also have to pay a prorated amount of the cash advance back.

[tjthemanto]

I would never approach my bank for a mortgage rate as I know that is not where I will get the best rate.

A mortgage broker will get you the best rate. The mortgage broker is working for you, and is getting paid by the institution with which you sign the mortgage.

The bank will never offer you the best rate. The bank isn't working for you, it is looking out for its own interests. Doesn't matter if it is the bank with which you have your day-to-day banking, or the bank that holds your mortgage. Doesn't matter if you are a new customer of have been with them for 25 years.

When we bought our first house, we used a mortgage broker. She was great. When we sold two years later, we still had three years left on our term. We contacted our mortgage broker again, she looked around for us and then advised us to port our mortgage as the rate we had (0.9% below prime on a variable rate mortgage) was no longer available and when she did the math, porting was our best option. That was five years ago.

We renewed our mortgage this spring. We looked at what the best rates available from mortgage brokers was and knew what we were targeting. When the company with whom we had our mortgage offered us renewal terms, they were terrible. My husband called the contact, told him what type of mortgage we wanted, what rate we wanted, etc. Otherwise we would go elsewhere. Two days later, he called us back and offered us exactly what we wanted. We renewed with them instead of using a broker because we were comfortable using them again and we had the best rate we knew we would get.

Not all mortgage brokers will do that.

Quite a few of them will try to give you a mortgage on which they make the maximum commission and not necessarily the best rate.

So if TD gives them maximum commission to bring a client in as opposed to BMO , they will try to get you a TD mortgage even if its higher than BMO.

So you have to know the rates , and need to make sure that they are really bargaining and negotiating with the banks on your behalf .

But they have more leverage than you with the banks ..so if they really negotiate ( and not just care about the maximum commission ) they will often get a better rate than you can on your own.

[brunt]

I'm sorry, I am no defender of the banks, but I have to take the other side of this.

Let's look at the whole thing from the other side.

Suppose that you work for a number of people, and that you have an amount of wage under which you will not work, but you are happy to receive. If some of the people who send you work never ask you what your lowest price is, and pay you an amount that is higher than what you are willing to charge. Do you tell these people "no, please, that is too much money, I will work for less", or do you take the higher rate? If you would take the higher amount, then why should the bank not?

This is how the free market works - you work hard to find yourself the highest income, but the lowest costs don't just automatically come to you. You have to work for those too. I would not expect any place to come out with their absolutely lowest price the second you walk in the door, why should they?

[Gsxrboy]

I'm sorry, I am no defender of the banks, but I have to take the other side of this.

Let's look at the whole thing from the other side.

Suppose that you work for a number of people, and that you have an amount of wage under which you will not work, but you are happy to receive. If some of the people who send you work never ask you what your lowest price is, and pay you an amount that is higher than what you are willing to charge. Do you tell these people "no, please, that is too much money, I will work for less", or do you take the higher rate? If you would take the higher amount, then why should the bank not?

This is how the free market works - you work hard to find yourself the highest income, but the lowest costs don't just automatically come to you. You have to work for those too. I would not expect any place to come out with their absolutely lowest price the second you walk in the door, why should they?

I completely agree with your statement, it is in the banks best interest to maximize their returns. If I was a business owner, this would be awesome. This post was to give some people information and to make a better decision on their rates. Most people I have spoken to (including my parents) never question the rate and simply renew.

[MortgageQueen]

The fact of the matter is a mortgage broker works for YOU with YOUR interests at heart. They generally have at least a few dozen lenders to choose from and can suit your needs. . . . not try to "squeeze" you into one bank's limited products.
Not only that, but they help you make good decisions based on your particular individual circumstances. The public think it's all about the rate, but really the difference between (for example) 3.1 and 3.2 is quite negligible when you are receiving a better product with better over all terms.
Sadly, a lot of people treat shopping for their mortgage like going to Walmart for the cheapest brand. It doesn't always pay and in fact could end up costing you thousands of dollars down the road.

[MortgageMaster]

Mortgage agents do not receive more commission for sending an application to one lender than another if it is for the same term. If a client wants a 5 year mortgage we look for the lender that will give the lowest rate as long as the product is favourable for the client ie: good prepayments, ability to port it, ability to increase payments and perhaps most important is which one will allow the clients to refinance or pay it off during the term with the least penalty. Different lenders use different calculations to figure out the IRD. One lender may offer a lower rate if the deal is closed within 30 days for example.
On shorter terms there will be lower commission. Why would I not give the client a 2 year term (instead of a 5 year term) if that is what they want? If I try to push them into a longer term they might walk away or not come back at renewal time.