# Low rate mortgage lenders - any recommendations?



## Franko (Mar 31, 2012)

Hi all,

My wife and I are looking to upgrade from our townhome into a "forever home" and have staked out a few properties in Edmonton. I've been shopping around for mortgages and it seems that none of the big banks can match the smaller lenders for interest rates (a lot of smaller lenders are offering in the 2.40-2.50% range for a five-year fixed, versus the big bank rates of ~2.8%).

As this is a forum for the financially savvy, I'm sure a lot of you have taken the plunge with the smaller lenders. If you've had experience with these lenders, I would appreciate any advice and insight into which lenders are good (fair terms, no surprises, etc) and any potential pitfalls to watch for when dealing with him.

As I am quite new to this whole thing, any advice would be much appreciated!

Edit: on the topic of mortgage brokers - I have spoken with one or two who were not able to match the rates I found online. Would you recommend seeking out a few more to see what they have to say? Would you recommend a mortgage broker overall? (and in your opinion, will they earn their added cost?)

Franko


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## Just a Guy (Mar 27, 2012)

First off, most Canadians move every 7 years on average (coincidentally that's usually around the "break even" point of owning a home). You may think his is your "forever home", but the odds say otherwise. 

Second, what do you consider a "small lender"? Most of theses "lenders" are usually repackaged from the big banks with more restrictive terms. You need to find out what their terms are, things to look for are repayment terms, breaking the mortgage terms, legal fees, hidden fees, renewal terms, amortization, etc.

Mortgage u/w would probably be the best person to ask as he actually deals with underwriting mortgages on a daily basis.


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## carverman (Nov 8, 2010)

Just a Guy said:


> First off, most Canadians move every 7 years on average (coincidentally that's usually around the "break even" point of owning a home). You may think his is your "forever home", but the odds say otherwise.
> 
> Second, what do you consider a "small lender"?]Most of theses "lenders" are usually repackaged from the big banks with more restrictive terms. You need to find out what their terms are, things to look for are repayment terms, *breaking the mortgage terms*, legal fees, hidden fees, renewal terms, amortization, etc.
> 
> Mortgage u/w would probably be the best person to ask as he actually deals with underwriting mortgages on a daily basis.


Everything sounds good until there is a unexpected life changing occurance.

Breaking the mortgage on a 5 year fixed to get the lowest rate is something that needs to be investigated before you commit. 

My son, for example bought a "million dollar" home in the Cambridge area in the spring of 2014 (about 18 months ago)
He used the equity from their previous home in the Toronto area, moving for a better job. He searched and found mortgage lender that satisfied his quest for a subprime mortgage rate. 

It was all and well for about a year, but this year, he and his wife are splitting up. 
Now he is telling me it will cost him $60,000 to break the mortgage only after a year and a half into the 5 year term. 
He's not sure if he can keep it going for another 3.5 years before the current term is up, so he is in a BIG dilemma, since they were counting on two incomes to finance the
new expensive house and living expenses and still raise 3 small children.


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## Taraz (Nov 24, 2013)

You can try James Catterall. (Mortgage Architects) https://www.linkedin.com/profile/vi...cmpt:primary,VSRPnm:true,authType:NAME_SEARCH


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## Mortgage u/w (Feb 6, 2014)

Franko, the 'small lenders' are not as small as you think....but I understand what you mean 

In fact, they are favourable in terms of conditions when compared to the big banks. Penalty calculations, for example, are horrendous for the big banks. The 'smaller lenders' will charge much less since they will calculate a rate differential using their posted rates - notice the bank posted rates and compare. You will quickly see that the banks have much higher 'posted' rates so their penalty becomes double sometimes triple that of a mono-line lender.

It is very rare that a mono-line lender will have an inferior product to the bank. These loans are usually packaged and sold as a mortgage bond where the main investor is....a big bank. The banks have strict criteria so be rest assured they will not buy junk bonds. 

As a recommendation: the top mono-line lender in Canada is First National. 
Street Capital, MCAP, Home Trust, Merix are other lenders but First National is much bigger in market share - by far.

You will need to seek a mortgage broker since a client cannot deal directly with any of these lenders. Banks also have a broker channel and believe it or not but they actually compete with their own bank as well (branch business).

You will need to seek a reputable mortgage broker who deals in high volumes since they will have access to the best rates. You can also contact True North Mortgages - they are salaried employees but do the same job as a broker. They actually buy down the rates in order to beat the competition. 

Bottom line, you should not be too concerned about the 'smaller lenders' especially the ones I've mentioned. 
Actually, you should favor them!


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## Franko (Mar 31, 2012)

Thanks for the info and support everyone, this is all gold!

@Mortgage u/w: thanks for confirming my suspicions about the "small" lenders . It's good to know that info regarding the repayment penalties. I've previously heard from suspect mortgage brokers that the smaller lenders typically have more restrictive terms though (in terms of hidden fees, less freedom when repaying/renewing, etc) than the big banks. Is this actually true, in your experience?

I did look at First National, but their rates appear to be higher than some of the other lenders out there. Also, it looks like I can apply to the lowest rate mono-line lenders directly online (CanWise and Zilla both have online applications). I spoke to two brokers and neither were able to compete with the rates that I found from these lenders (the posted rates online were around 2.45% and the lowest offer from the brokers I spoke with was 2.59%) - am I misinterpreting something here? Or just going to the wrong brokers? 

Finally, what's your opinion right now on fixed vs variable? I know no one has a crystal ball, but I'd appreciate your professional weigh-in on the matter . The difference in online rates for Alberta seems to be about 0.40% between fixed and variable rates.

Again, your time and expertise is very much appreciated 

Frank


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## Mortgage u/w (Feb 6, 2014)

The hidden fees are somewhat of a myth. People misinterpret certain costs associated to obtaining a mortgage so they blame the lender as a hidden cost. Example is title insurance - some lenders require it on all mortgages. This is not a fee that the lender recuperates but rather a cost associated to your loan. And again, this will be divulged beforehand. Unless you are dealing with a crooked broker or a private lender, all fees are divulged on the commitment letter. But typically, there are no hidden fees for the lenders I have mentioned. The 20/20 or 15/15 prepayment privilege is also similar across all lenders. 

I am not too familiar with Zilla but I assume its the same as Canwise. I suggest you read this article: http://www.theglobeandmail.com/glob...due-to-low-rate-restrictions/article23649919/

You see, Canwise is not a lender but just another mortgage broker. They advertise low rates but rarely can they honor them. I can tell you that no lender out there is able to offer 2.45% for a 5 year fixed today, so how can the broker offer it?

Personally, I would refrain from applying on-line. Seek a trusted mortgage broker.

My opinion on fixed vs variable has been to stick with variable. Regardless what happens in the future, statistics prove that the variable rate has always had an advantage vs the fixed rate over time. You also have to understand that today's rates are historically low. So don't go crazy for the small spreads. 
A variable rate today translates to apx 2.20%-2.30%. Fixed are currently at 2.79% and rising. The time your variable rate will take to reach 2.79% will be several years. So say halfway in your term your variable has reached 2.79%, calculate how much higher the rate will have to go in order for you to be at a loss. Remember you only have 2.5 years left and you benefited already from a good saving. I can tell you it has to at least double for you to be at a disadvantage. .
Also, should you break your term, your penalty is very low. Its a standard 3 mth penalty - same for all lenders. Its easy to change if you must and if the rates spook you, you can always convert to a fixed rate anytime.


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## Franko (Mar 31, 2012)

Mortgage u/w said:


> The hidden fees are somewhat of a myth. People misinterpret certain costs associated to obtaining a mortgage so they blame the lender as a hidden cost. Example is title insurance - some lenders require it on all mortgages. This is not a fee that the lender recuperates but rather a cost associated to your loan. And again, this will be divulged beforehand. Unless you are dealing with a crooked broker or a private lender, all fees are divulged on the commitment letter. But typically, there are no hidden fees for the lenders I have mentioned. The 20/20 or 15/15 prepayment privilege is also similar across all lenders.
> 
> I am not too familiar with Zilla but I assume its the same as Canwise. I suggest you read this article: http://www.theglobeandmail.com/glob...due-to-low-rate-restrictions/article23649919/
> 
> ...


Thank you again for the sage advice! I contacted True North today and they have very competitive rates, only 5-10 basis points above the rock-bottom Canwise/Zilla rates, which you stated were likely too good to be true anyhow. TN seems quite knowledgable, so I'd much rather go with them than gamble for a few basis points with Canwise/Zilla.

I also think I'll go with variable rate - as you said, the odds favor this approach.

I plan to do a bit more research before taking the plunge - would you have any other general tips/advice about the general process?


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## dougboswell (Oct 25, 2010)

Mortgage agents and brokers can offer lower rates in a couple of ways. This is done either by taking less commission and buying the rate down for the client or having the staff being on salary and not commission. There is nothing bogus about this.
There is also nothing wrong with using an online agent. They are just as professional, trusted and have as much experience as one who may use the traditional way of paper and an office.
You may want to look at IntelliMortgage Inc as they offer low rates and their staff that work with you are on salary. 
The only problem going with variable is that if you do decide to convert to a fixed during the term you will have to take the rate that they offer you, which probably won't be favorable to you.


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## Mortgage u/w (Feb 6, 2014)

Franko said:


> Thank you again for the sage advice! I contacted True North today and they have very competitive rates, only 5-10 basis points above the rock-bottom Canwise/Zilla rates, which you stated were likely too good to be true anyhow. TN seems quite knowledgable, so I'd much rather go with them than gamble for a few basis points with Canwise/Zilla.
> 
> I also think I'll go with variable rate - as you said, the odds favor this approach.
> 
> I plan to do a bit more research before taking the plunge - would you have any other general tips/advice about the general process?


I think your choice is wise to go with True North. They are fairly knowledgeable and have a good support team behind them. If you feel comfortable with the agent you spoke with, then stick with them. The standard rates they offer are already bought down so they always have rates which are 5-10bps lower than what the majority of lenders post on-line. Important you make the distinction between a lender and a brokerage firm. The firm gets their rates from the lender so they should not be that much different and surely cannot be made up. If you have a specific lender you want your mortgage with, you should ask your agent since they deal with all the major lenders out there, including banks. 

Good choice with the variable. Just to answer dougboswell's concern that when converting "to a fixed you will have to take the rate that they offer you".....well here is where the mono-line lenders will shine. True, you are stuck with taking what is posted, but remember what I said about the bank posted rates? That's right. The mono-line lenders always post their best rates so you are not stuck taking any bogus inflated rate such as that of the banks.

Other than that, I don't see much concern. Your agent should explain every detail and concern you would have. Expect to furnish lots of documents - this is normal since the mortgage rules have tightened up and the qualification process is very rigorous. Read your commitment letter when issued and ensure you understand all the conditions on there. 

Glad I could help!


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## SudburyGal (Jan 14, 2016)

Ask around for local folks willing to play ball. I brought a low rate I'd gotten from one institution to TD and was able to match that rate with much better terms when I got my mortgage. Great rates sometimes come with crappy terms (inability or very limited ability to increase monthly payments or very low lump sum payment options, etc). Not every mortgage specialist at TD was willing to play ball, I had to meet with a couple to get one that was willing to, I liked their terms.

Think about what's important to you - flexibility? Low payment? Minimum cost of borrowing? Make sure whatever you're most interested in is covered - there is more to a mortgage that interest rate. Life can change significantly during your term, and flexibility can help manage those changes (good and bad, think marriage break up, job loss, major pay increase, or inheritance). Some mortgages offer "payment holidays" if you make pre-payments, an option I quite liked when we bought our house since we both worked for the same employer in a sector without a lot of security. As I suggest, find an institution that offers good terms, then find someone there willing to match a good rate to gain your business.


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## mordko (Jan 23, 2016)

We have always gone with a closed variable and,like Mortgage says, saved a tonne of money over the years. Breaking the term right now is costing us less than $500 - they allow to repay the quarter of the ORIGINAL amount taken 12 years ago without penalties and then charge 3 months worth of interest. 

The one time I would consider fixed, would be if I were on a tight budget and couldn't afford for the rates to go up by a couple of percentage points within two years or so. That is certainly within the realms of possibility right now.


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## Mortgage u/w (Feb 6, 2014)

mordko said:


> We have always gone with a closed variable and,like Mortgage says, saved a tonne of money over the years. Breaking the term right now is costing us less than $500 - they allow to repay the quarter of the ORIGINAL amount taken 12 years ago without penalties and then charge 3 months worth of interest.
> 
> The one time I would consider fixed, would be if I were on a tight budget and couldn't afford for the rates to go up by a couple of percentage points within two years or so. That is certainly within the realms of possibility right now.


Just to re-enforce the variable vs fixed argument: from when this thread started to today, the fixed rates have increased dramatically. Some 5 year fixed rates went as low as 2.29% and today, they have drastically increased; hovering the 3% mark. Meanwhile, the variable discounts have remained where they were and luckily the BoC has not changed the prime rate. So currently, there is a large spread of about 70bps between the fixed and variable rates.


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## mordko (Jan 23, 2016)

Right. One way to look at it: fixed rate premium is your insurance against the rates going up. The premium has increased because the risk has increased. 

In most cases it pays to be self-insured, but not if you can't afford for the event you are insuring against to occur.


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## Mortgage u/w (Feb 6, 2014)

^^The way I see it, there is no protection with fixed rates. If rates have to go up, you will be hit with a rate hike sooner or later. If rates go on an upward trend for the next 5 years, you're renewal will be a hefty one since you were not able to break your term, whereas with a variable, you can bail out whenever you can.

My motto is you can't time the market - cause in essence that is what people are trying to do with their mortgage rates.
Always take the lowest rate and shortest term possible because you always want an easy exit rather than an easy entry.


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