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Sunday, February 25th, 2024

Mortgage brokers undercut banks

Mortgage brokers are once again undercutting the banks and some are willing to buy down your rate — eating part of their commission in the process — to gain customers.

Steep mortgage discounts from the major banks have all but disappeared from the market, leading mortgage brokers to make sacrifices for market share amid new rumours that another major Canadian bank is going to bring its business completely in-house.

“There are so many options out there besides the banks. [These latest rate hikes] have given brokers an edge because bank pricing is notably higher,” said Rob McLister, editor of Canadian Mortgage Trends.

Mr. McLister reported on his blog that Canadian Imperial Bank of Commerce is rumoured to be putting its discount arm, FirstLine Mortgages, up for sale.

He cited sources that said CIBC would exit the broker channel after the sale.

A CIBC spokesman said it is policy not to comment on industry speculation.

CIBC, which would be joining Royal Bank of Canada and Bank of Montreal in abandoning mortgage brokers, is said by Mr. McLister to have been the largest broker lender in the market in second quarter of 2011 with a mortgage book of $47-billion.

By the third quarter CIBC had fallen to fourth as it pulled back from the mortgage broker channel in favour of selling through branches.

Mortgage brokers have been facing more competition from banks, which are using so-called mobile mortgage specialists who are employed by financial institutions but go into the community to reach out to consumers.

The Canadian Association of Accredited Mortgage Professionals noted in its fall survey that 27% of consumers had obtained a mortgage from a broker in the previous 12 months, up from 25% a year earlier.

It was a month ago today that Bank of Montreal surprised the market by lowering the rate on its five-year, fixedrate closed mortgage to 2.99%. It came with conditions – limits on prepayments and only a 25-year amortization period – but it was the lowest rate in history for the most popular term among Canadians.

The BMO offer was quickly matched: Some banks offered the same rate over a four-year term with fewer restrictions. However, the all-time low rates have since disappeared.

BMO, which advertised its offer as a two-week special, now has a special low rate on a five-year term that is back up to 3.49% – still a discount from its 5.24% posted rate – but nowhere near what Mr. McLister said is obtainable by shopping around. “Since the special ended, we have had improvements in rates from a variety of our lenders,” he said.

“What I hear from my sources is there is less discretion from the bank’s mortgage specialists to lower rates,” Mr. McLister said.

On the discount front, fiveyear fixed mortgages can still be found for as low as 2.99%, if you accept some restrictions. A mortgage with full features like 20% prepayment of the principal per year is closer to 3.19%.

What has put the broker community back in the game are rising bond rates, which have increased the cost of capital for banks and squeezed their profits.

Farhaneh Haque, director of mortgage advice and real estate secured lending at Toronto-Dominion Bank, which had dropped its rate as low as 2.99% for a four-year fixed closed mortgage before increasing it to 3.39%, said competition drove the discounts.

“But bond yields changed and your cost of funds changed, therefore the banks had to [raise rates],” Ms. Haque said.

Kelvin Mangaroo, president of, said the banks had discounted so low they were squeezing brokers out of the market. “We never expected them to get that low [with rates] and that aggressive,” he said.

Sensing opportunity, brokers are fighting back. Some are willing to eat into their commission to lower rates.

Mr. Mangaroo says brokers in Montreal have gotten into a battle that has seen variable mortgage rates in the city drop by almost 50 basis points off the 3% prime rate.

Peter Aceto, chief executive of ING Direct Canada, which has been pretty consistent in discounting rates and offers a five-year mortgage for 3.34%, says consumers should ensure the product fits their needs before signing.

“Ask questions about the flexibility [of a mortgage product] and if you get the answers you want, take it, don’t come to us,” says Mr. Aceto, adding that was his response to BMO’s 2.99% mortgage.

“If you don’t get answers you like and are surprised by anything, turn and run.”


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