A common misconception about variable rates is the process of “locking your rate in”. A more accurate description would be to “convert it to a fixed rate mortgage”. Although every lender has different policies surrounding their variable rate products, most will allow you to “lock in your rate”. This generally means that you can convert it to a fixed rate mortgage that is equal to or longer than the amount of time that you have remaining on your current term. Here are a few facts on the Major 6 Banks in Canada and how they decide what discount to give you off of the posted rate (ex. 5 year posted rate today is 5.39%):
TD Canada Trust: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank. 1% off posted is guaranteed in year one.
CIBC: The discount originally offered on your variable rate mortgage (VRM) is what will be applied to their fixed posted rates.
Scotia Bank: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank.
BMO: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank.
Royal Bank: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank.
HSBC: Posted open after 3rd year.
Explanation: So basically if a client has a lot of other business with the bank they may do alright, however if they don't have other business or the bank is just not feeling generous that day, they could be paying a much higher rate than the market is offering or paying a penalty to make a change. The time to understand this clause is not when you are looking to lock in, but rather when you are signing up for your VRM.
The difference between locking in at the posted rate vs the discounted rate can cost you over $18,000 in additional interest in just 5 years on a $250,000 mortgage amortized over 25 years. There are a number of lenders in the broker channel who offer a guarantee of their lowest rate for a 3 year or longer term when you lock in. This means that using a broker that is working for you instead of just walking in to the nearest branch, can save you money and give you peace of mind knowing that you have the best rate possible.
TD Canada Trust: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank. 1% off posted is guaranteed in year one.
CIBC: The discount originally offered on your variable rate mortgage (VRM) is what will be applied to their fixed posted rates.
Scotia Bank: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank.
BMO: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank.
Royal Bank: Discretion is decided by loan officer based on how strong they feel your relationship is with the bank.
HSBC: Posted open after 3rd year.
Explanation: So basically if a client has a lot of other business with the bank they may do alright, however if they don't have other business or the bank is just not feeling generous that day, they could be paying a much higher rate than the market is offering or paying a penalty to make a change. The time to understand this clause is not when you are looking to lock in, but rather when you are signing up for your VRM.
The difference between locking in at the posted rate vs the discounted rate can cost you over $18,000 in additional interest in just 5 years on a $250,000 mortgage amortized over 25 years. There are a number of lenders in the broker channel who offer a guarantee of their lowest rate for a 3 year or longer term when you lock in. This means that using a broker that is working for you instead of just walking in to the nearest branch, can save you money and give you peace of mind knowing that you have the best rate possible.
Comments
Post a Comment