Canada’s six biggest banks control more than 70 per cent of the residential mortgage market.Andrew Lahodynskyj/The Canadian Press
Canadian mortgage shoppers should know that the interest rate you ultimately get depends heavily on who you speak with and how well you negotiate. Two borrowers with identical financial profiles can walk away with quite different rates. Which means that understanding how lenders price mortgages can save you thousands.
The Big Six banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada (RBC, TD, Scotiabank, BMO, CIBC and National) – control more than 70 per cent of the residential mortgage market, yet they rarely reveal the lowest rates they offer prime borrowers. Their advertised rates are typically much higher than what clients actually receive.
Have homes gotten pricier – or has money lost its value?
This opacity is intentional: Disclosing true floor rates would limit price differentiation between customers and eat into the banks’ profit. And because most Canadians default to the Big Six because of each bank’s brand and branch network, there is little pressure for greater transparency.
Data from WOWA Data Labs shows a significant gap between advertised mortgage rates and the actual rates borrowers receive. As the table below illustrates, for three-year fixed conventional mortgages, RBC, TD, Scotiabank, BMO and CIBC, on average, offered rates more than 0.50 percentage points below their advertised rates in our sample. Similar spreads appeared across other terms, including five-year fixed mortgages.
A 0.5-percentage-point difference on a $500,000 mortgage amounts to approximately $2,500 in extra annual interest – that’s how much mortgage borrowers could end up paying just because they were not aware of the lower non-advertised rates.
How to get the best mortgage rate
Despite the opaque pricing, prime borrowers – those with credit scores above 680, stable employment and manageable debt levels – can still secure very good rates using a few strategies.
1. Look beyond the Big Six
Smaller federally regulated lenders and credit unions often offer similar products at more competitive advertised rates. Use rate-aggregation platforms such as WOWA.ca, Ratehub.ca, Rates.ca and NerdWallet to compare more than 30 lenders on a single page.
2. Shop around to find true bank floors
To understand what the Big Six are truly offering, speak directly with multiple bank branches and consult mortgage brokers. Many banks offer non-public broker-only rates that do not appear on their websites. Note that some lenders work with only a select number of brokerages.
3. Check a few brokerages
As mentioned, not all brokers have the same access to major lenders, so it’s wise to check with a few. In addition, brokers don’t always offer identical rates, even from the same lender. While brokers typically earn 0.5 per cent to 1 per cent of the mortgage amount, some high-volume firms, such as Butler Mortgage, reduce their commission to offer lower rates.
4. Use employee rates as a benchmark
If you know someone who works at a bank, ask about their employee mortgage rate. While you may not qualify for that rate, it can give you a realistic sense of the institution’s price floor.
Canada’s mortgage market is designed to keep the best rates opaque but prime borrowers can still secure significant savings. In a system in which information is currency, being an informed shopper is your strongest advantage.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.
