A Comparison: Posted Interest Rates & Discounted Interest RatesAdmin
We’re sure that you’ve already started doing your mortgage research, keeping an eye on interest rates and comparing them among various lenders, if you want to purchase a home. Among these various lenders are most likely banks and credit unions, who typically offer:
- Posted rates (also known as a set rate)
- Feature discounted or special rates
Trying to understand these rates on your own can be quite challenging. A mortgage broker can be utilized to help you understand posted and discounted rates and what they mean.
Most people assume that the difference between discounted and posted rates is the penalty fees charged by banks for their broken mortgage term. For instance, some lenders use IRD (Interest Rate Differential) on five-year fixed rate mortgages. They use it to calculate the expensive penalty based on the posted rate.
Posted rates are publically announced rate, which is usually announced by banks and lenders. These are typically a percent higher than rates being offered by the banks.
However, since both low and high rates are posted on the bank website, it’s essentially up to you to negotiate. If you have a mortgage broker, they’ll negotiate with lenders for you. If you’re a great negotiator then you probably aren’t too worried. If your negotiation skills leave something to be desired than you’ll want to get your mortgage broker involved to ensure you get the lowest rate.
Discounted rates are just that, they’re discounted. As a borrower, you may pay your lender to decrease your mortgage interest rate.
There are downfalls to pursuing low discounted rates, some comparison sites provide the cheapest mortgage rates may have strings attached. So don’t get too excited.
To find the best-discounted interest rates, speak to a professional mortgage broker today. Contact Mortgage Alliance now.
That loyalty doesn’t stop there. When it comes time to mortgage renewals, 81 per cent of borrowers stayed with their current lender according to the 2016 Canada Mortgage and Housing Corporation (CMHC) Mortgage Consumer Survey. That could mean that people were able to negotiate a better interest rate without having to change lenders, but given a 2011 Manulife Bank survey where 20 per cent of respondents with a mortgage stayed with their current lender without negotiating at the time of renewal and 45 per cent of respondents stayed with their current lender but negotiated a new rate at the time of renewal – in other words, 65 per cent of mortgage-holders did not compare mortgages from more than one lender when they last renewed their mortgage – chances are that more people stayed with their current lender without looking at other options.
Apart from loyalty and convenience, consumers aren’t always in the clear when they go to a lender or even when they use a broker. Although you want to know the lowest mortgage rate available, the downside to chasing after the lowest or the most discounted rate is that those rates don’t tell the whole story. So even when you search a rate comparison site and find the lowest mortgage rate on the market, don’t start celebrating just yet.
“A lot of times it is the best rate but a lot of times you don’t actually qualify for it, so it’s a way to generate a lead but not necessarily get what you’re looking for,” Westlake says – not unlike the 50 per cent discount that’s advertised on a store flyer to get you through the door, but once you get inside you find out that you have to buy $75 worth of items first.
It can be difficult to see past the advertising and muddle through the various rates, but it’s important to know what you’re getting and why you are or aren’t eligible for certain advertised rates. “The best thing for a consumer to do is to do is to ask questions,” Westlake advises. Go in knowing how strong of a borrower you are, whether or not you have a good credit rating, and how much leverage you have when it comes to taking your business elsewhere. At the end of the day, all lenders want to get you – and keep you – as a customer, so if you’re a low-risk borrower, you have plenty of options. When it comes to your interest rate, however, you probably won’t get the lowest that you see advertised or the highest that you see posted. The truth, as with many things, lies somewhere in the middle.
“When a lender doesn’t offer the best rate it is more because of timing, the market, what they are focusing on. . . . Maybe they can’t offer the best rate at the time; maybe they can and chose not to. It’s again about choice and if you go to one lender you get one rate and one set of terms; if you talk to a broker or mortgage agent you get choice, lots of rates, lots of terms,” Westlake says.