Five years ago I acquired a variable rate mortgage from CIBC. It was the cheapest rate I could find at the time. I was quite pleased with the rate but that mortgage term expired a couple of months ago. So I shopped around to see if I can find another good deal.
I expected my mortgage to become more expensive. Surely rates would have climbed over the last 5 years right?
But no. To my surprise I found a lender that offered me an interest rate that’s lower than my previous mortgage by 43 basis points. 😀 CIBC was not able to match this offer so I switched. The new financial institution I am with is not one of the big 5 banks in Canada. It is a lesser known company called National Bank.
I was paying 3.05% with CIBC. This was a variable rate 5 year mortgage at prime minus 0.40%. This was the best CIBC could do.
But my new mortgage with National Bank is only 2.62%. This is also a variable rate 5 year mortgage term. Except the rate is Prime minus 0.83%
A 0.43% difference in interest rates doesn’t sound like a lot. But my mortgage balance is around $193,000. So I will be saving roughly $4,000 over the next 5 years because I switched to a cheaper mortgage provider.
However there are costs associated with changing lenders. Appraisal costs $600, and legal documents from a notary public was $800 in my case. Luckily National Bank has a $750 rebate program for transferring over an existing mortgage. 🙂
In the end the cost of changing banks was worth the extra savings in my case.
Even though most Canadians are choosing fixed rate mortgage I still believe that variable rate is the way to go if you want to save money. The increase in fixed rate mortgages locked in by most home buyers this year is “seen as a response to rate hikes, and fear of higher rates in the future.” But critics have been calling for higher rates for over a decade. Yet rates haven’t actually gone up much. In fact, mortgage rates have dropped over the past 5 years as shown in my post today. That’s why we have to be informed of economic conditions so we can make our own financial decisions, instead of following others. 🙂
I have been a homeowner for almost 10 years. During this time my mortgage interest rates fluctuated from 2.3% to 3.2%. It doesn’t look like rates will climb significantly any time soon. Until we see increasing mortgage rates, I would expect Canadian housing prices to climb even higher.
Updated Sept 2021: After shopping around some more, I’m seeing Canadian mortgage rates have continued to drop since I initially wrote this post. What’s clear is that the big 5 banks are not as competitive, with brokers and smaller lenders offering lower rates with greater flexibility.
The bottom line, a mortgage is a mortgage and these days, pretty much every lender offers customer service by phone, email or live chat and an online portal where you can login and manage your mortgage payments. By being open to lenders that are not the big 5 banks, you stand to save a significant amount. Remember, you are borrowing money from the lender. Lesser known lenders are still highly regulated by the Canadian government.
Random Useless Fact:
30 years ago only 5% of the population admitted to being chronic procrastinators compared to 25% today. Some believe technological advances is the main cause of this change.
Good job Liquid. $4000 (or $800 per year) saving is big.
My mortgage renewal is coming in 2019. I am planning to go with variable rate because as well.
I hope you get a good rate as well. 🙂
Nice move on the var rate. But, you went from paying $800 to $876?.
I had a mortgage and a home equity line of credit before with CIBC.
I consolidated the mortgage and HELOC into a single mortgage when I switched banks.
This means my mortgage balance went up by $14,000 so my mortgage payment is higher now.
The good news is I no longer have a $14,000 home equity loan. 🙂
I don’t understand Canadian mortgages. Here in the states just south of you we typically get a fixed rate 30 year or sometimes 15 year mortgage. Your house payments can never go up. There is no variable rate and it never expires until the end of the term when it has been paid in full, unless you chose to pay it off early. Why do Canadians take the risk that interest rates will go up instead of locking in a fixed rate for the life of the loan? Seems risky, if interest rates shoot up high then where are you in five years when your mortgage expires?
If rates shoot up after 5 years then I will have to pay more interest when I renew my loan. Locking in the mortgage rate for longer would reduce long term interest risk for sure. Most Canadian homeowners I know choose 3 to 5 year terms, 🙂 although it’s possible to find a higher fixed rate for 10 years or longer. There’s usually a premium to pay for certainty. It could be why some Americans choose 5/1 ARM rates rather than going with 30 year fixed. But it’s good to have the option for each individual to choose.
Even when you renew your mortgage in a higher interest rate environment, you’re renewing at a lower base (principle). Further, money saved with a lower interest rate environment could be invested (what liquid is doing). If you assume that money saved by having a lower rate is invested and earns 7%, prevailing rates after the first term would have to increase over 300% to lose all benefit of a 5 year term at a lower rate.
A decent rate… last year we bought a recreational property in June. As much as your rate is good and variable as you note, the rate we managed was 2.49% with BMO for a 5 year closed… something we are very happy with. In the end, the perceived insignificant differences in rates and lenders are what make the difference, and doing some leg work and learning how to negotiate pays long term back to those who know their finances. – Cheers
Wow congrats on the low rate. The early leg work is really worth it. 🙂
Home mortgage rates have fallen to all time low recently while inflation has been relatively low as well, though low mortgage rates and low inflation do not always coincide.
Yes. Some believe inflation will pick up in the 2nd half of this year caused by trade wars. If that happens interest rates could move higher more quickly. But we’ll see.
I have always been too fearful to use an ARM. Can you go to the bank and change to a locked in rate if you think rates are going to rise?