Posted Rates vs Actual Rates

Do you stand a good chance of getting that low advertised rate?

When you see a low rate, it usually has the word 'from' in front. That's because the rate shown is considered a starting point of a range, rather than a single number.

So, despite the low advertised rate, you may end up with a slightly higher rate due to universal qualifying factors that can affect the rate the lender offers you.

Getting the low rate you see advertised can depend on:

• Qualifying through the required federal mortgage stress test minimum rate of 5.25% OR your rate plus 2.0% (whichever is higher)
• Your financial info, such as income, debt load, home equity (if you already own), and credit standing
• Product details (e.g. if the rate is only for a home purchase or lender switch at renewal)
• Your mortgage details, like remaining mortgage balance, home purchase price, or whether you need an insured or uninsured mortgage

The idea should be that most good-credit clients will be able to get the lowest rate, or close to it, within the range.

Which rates get the spotlight?

A mind-boggling array of mortgage options and rates is available in the mortgage lending space. All the 'lowest' rates for each client scenario can't possibly be advertised. And psychology is part of it: you want to save money, and a moderate rate you may actually qualify for is unlikely to catch your attention or clicks.

Default-insured mortgages tend to have the lowest rates because they carry reduced risk for lenders. So, they're typically the low-advertised rates you see, and ones that lenders battle over to get your attention.

Of course, if you need an uninsured mortgage or even an open variable-rate mortgage (the latter tends to be a few points above prime), that low rate won't apply to your situation.

Yet, baseline-rate products still provide a mortgage market benchmark, and responding to that deal may help you save, even if it's not the rate you saw.

What does a low advertised rate mean for your actual rate?

It's important to consider the source of the low advertised rate you see, and what you're getting with that rate, such as a bona fide sale clause or more frequent interest adjustments. Will it genuinely save you money compared to another rate?

Let's dive deeper for a better understanding of the low rates you see.

Rate Comparison Sites

Lowest Lender Rates Available? Or 'Bait and Switch'?

Sites showcasing mortgage rate comparisons aren't focused on saving you money. They typically use low-rate bait to generate clicks and leads for lenders who pay for them — and to capture your info to sell to third parties.

So, the rates displayed may not be the actual rates those lenders offer. Sometimes, only the rate is displayed without revealing the lender, hoping you click on it.

If you fill out a form and are (eventually) connected to a broker or lender, if the rate isn't what you thought, it may not be because your qualifying details impacted the actual rate offered, but possibly the rate wasn't 'real' in the first place. You can check the lender's website to see whether the same rate offer is being promoted.

'Ultra-low' rates displayed may also come with restrictions (like a bona fide sale clause) or hidden costs (like monthly interest compounding for a variable rate rather than semi-monthly) that you may not know about until it's too late.

Read more here: Can You Trust Rate Comparison Sites?

What are some things to ask when comparing rates?

• Flexible mortgage features. Does the rate come with reasonable prepayment privileges?
• Hidden fees. Are all the fees outlined upfront? Look for hidden wire or admin fees, or charges for payment-frequency changes, or to recast your mortgage after a lump-sum payment.
• Bonafide sale clause. This clause can impact your ability to sell your home or break your mortgage mid-term.
• Interest compounding. Does the lender compound your variable-rate interest monthly rather than semi-monthly?
• Mortgage product. Is the rate for an insured or uninsured (conventional) mortgage?
• Good credit standing. Are you a good-credit client looking for an insured mortgage, and you can't get the rate? That's an indication that the rate isn't real.
• Location. The low rate you see may only be available in a particular area, such as the province of Ontario, and may not actually apply to where you own a home.
• Rate guarantee. A rate guaranteed offered is a sign that the broker or lender stands behind their rates. (True North Mortgage was one of the first brokerages to offer a best rate guarantee.)

The Big Banks

Posted Rates vs Promotional (or Special) Rates

Canadian Big Banks (such as RBC, TD, and Scotiabank) advertise their rates as posted rates, and then promotional or special rates.

Whereas we advertise the lowest rates actually available to you (based on qualifying details), Big Banks post higher rates, making a promotional or special rate look pretty good by comparison, especially if they also offer cash rebates. But in the end, you'll usually end up paying more, especially if you break your mortgage mid-term.

Big banks typically have higher rates or charges to cover the costs of operating at their behemoth scale and maintaining cumbersome IT systems (compared to an MFC lender like our in-house THINK Financial, which focuses solely on a streamlined mortgage process).

Big Bank posted rates are higher for (mainly) 2 reasons:

1. You think you're getting a deal with their promotional rates. Ever tried to negotiate with your bank? You likely didn't get much budge on the first rate they offered. Perhaps they went a step beyond their promotional rates to offer you 'preferred client' rates.
   
   But even those rates are likely still higher than the rates we can offer you after our volume discount. And if you can get a better rate somewhere else, you'd probably prefer that rate.
   
   
2. To discourage you from breaking your term. If you want to switch lenders or refinance, your actual rate — the 'discount' from their posted rate — is turned around and used to charge you higher IRD penalties (Interest Rate Differential), potentially costing you thousands more.
   
   Here's an example of how posted rates lead to a higher penalty. Let's say the Big Bank's posted rate was 7.0% and you got a 5-year promotional or preferred-client rate of 5.0%. If you need to break your term (e.g., moving for a job), that 2% discount is factored into a higher penalty on your mortgage balance for the remaining term.
   
   And if the market rate has declined further than your 5.0% actual rate, resulting in a larger rate difference between the original posted rate and your promotional rate, your penalty will be even higher.

Banks get a lot of repeat business through pure customer loyalty. Once you've signed on, they're banking on you coming to them for your next mortgage or signing a renewal document without either negotiating or checking around for better rates. The higher posted rates quickly rack up billions due to their business volume.

Want your best rate when it's time to renew? Get a helpful reminder here.

True North Mortgage

How does True North Mortgage treat advertised rates?

When we advertise low rates, there's a good chance you can walk away with it.

We believe in transparency. True North Mortgage purposely advertises rates that we feel a good portion of our mortgage applicants will be able to get — because that leads to happy clients who leave us multitudes of 5-star reviews.

For the lowest rates to apply, it's typically a good-credit client with the right down payment amount and a reasonable mortgage timeline (for purchasing, renewal, or refinancing).

But if you don't fit into that box, we have a remarkable range of rates and flexible mortgage products to help you find the best possible rate for your situation, often saving you thousands over your term compared to another source.

And when we promote a very low-rate product, like our short-term fixed Rate Relief™ mortgage, created to offer a brief budget break, we're upfront about its conditions and the mortgage client it's best suited for.

Compared to Rate-Comparison sites?

True North Mortgage doesn't advertise 'bait and switch' rates.

• We're genuine with clients and don't misrepresent rate offers. We provide a realistic range and quickly let you know whether aspects of your application will impact your actual rate. (The most common reason we can't offer a client the lowest advertised rate is whether you qualify for mortgage default insurance.)
• We continually check rate-comparison sites to ensure that they aren't misrepresenting our rates (it's one of our pet peeves).
• We have real rates, not bait-and-switch rates. We pride ourselves on offering clients the most competitive rates and flexible mortgage features on the market.

Compared to the Big Banks?

We don't use 'posted' rates. And we offer more flexibility on rates and mortgage solutions.

• Volume rate discount. As a national brokerage, we handle huge volumes and regularly sacrifice a portion of lender commissions to offer lower rates, sometimes from your own bank.
• We have relationships with several lenders. As a broker, our lowest-rate offers can change depending on the lender featured.
• We are also a CMHC-approved, non-bank lender. Our rates are, on average, 0.18% lower than the competition due to lower overhead and costs.
• Better rate for a better mortgage. Flexible features can save you even more, such as generous pre-payment penalties or the option to port your mortgage.
• Lower penalty calculations. For our in-house lender, THINK Financial, we list market rates, not padded posted rates. That means lower penalty calculations should you need to break your term, based on market rates.

The best way to get your lowest rate possible?

Well, that's an easy one. You can absolutely talk to your bank about your rate, but then, check back with us.

Or, talk to us in the first place, because we can often get a better rate from your own bank anyway. That's why we shop the lenders for you.

A few minutes with us can save you thousands. You may even get a better mortgage fit with your great rate.

Our salaried (non-commissioned) expert brokers provide completely unbiased advice at no cost to you. And, they'll set out all the numbers — and return your calls or emails — so that you can make a clear decision quickly and confidently.

Want to know your exact rate? Easily apply now, and we'll quickly help you find out.

Or give us a shout. We're here as your better mortgage choice.