CAAMP crunches the rate discounting numbers

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CAAMP’s comprehensive quarterly report, entitled “Looking for a ‘New Normal’ in the Residential Mortgage Market”, points to just how prevalent rate discounting is across Canada.

“The average mortgage interest rate reported here (3.37%) for fixed rate mortgages is well below the typical posted (advertised) rates that have been available during the past year,” the report states. “Since the start of 2013, posted rates for five year terms have averaged 5.18 per cent. The much lower actual rates found by the survey confirm that there is a substantial amount of discounting in the mortgage market.”

Brokers are split on the topic of discounting, with many viewing such tactics as necessary to competing for ever-shrinking market share. The fact of the matter, according to CAAMP’s report, is that discounting is most likely here to stay.

“Rate discounting is a necessary evil and in a way we’re killing ourselves working hard for less,” James Harrison of Dominion Lending Centres Mortgage Village told “A big problem is online: brokers are battling one another (but) online is good because it gives clients a lot of options.”

Harrison estimates his brokerage has to buy-down 50 per cent of its rates to ensure the deal goes through.

According to CAAMP’s stats, rate discounts average 1.95 percentage points for five-year mortgage terms.

The national organization used a wide swath of examples to come to its conclusion.

“The study group includes a wide range of mortgages, including a full range of lengths of term to renewal, fixed rate versus variable rate mortgages, and the mortgages have been originated over a prolonged period,” the report states. “This results in a wide range of mortgage rates.”
  • Angela Wong-Liao - Invis Inc on 2014-06-02 11:39:29 AM

    As a rule of thumb, spring market is the busiest and the most competitive, lenders are all out of their special promotional pricing to remain competitive in the market place.

  • Brian Lambert on 2014-06-02 12:18:36 PM

    You silly rabbit, you only settle for half a carrot? That's the problem with rate sites, you have to deal with tire kicks all day long. You buy down the rate and loss 50% commission. You have nothing to offer the client other than a rate buy down. I refuse to run a business that way, we work with our clients face to face and give them real time education and planning. A client has to feel that they to are getting something other than just a low rate. We all know to well that its not about the rate unless that's all you are offering. Banks can beat those buy down rates any day if they want to save their client! Stop trying to win your clients over with rate and win them with value. I have clients all the time tell me that they see lower rates on Rate Hub. They still do the business with us because I point out our value add service which is worth more than the .15% in rate.

  • Ron Butler on 2014-06-02 12:25:42 PM

    @ Brian, I mean absolutely no disrespect but are you saying you have never lost a mortgage to competitive rate discounting in your whole career?

  • Brian Lambert on 2014-06-02 12:33:07 PM

    Hi Ron, yes I have indeed lost clients. But most of the clients are what I referred to as tire kickers, shopping for the lowest rate. My preferred client is one that is interested in long term planning. Face to face planning. They are also the ones that send us all the referrals because of our unique planning. We also cross sell these client offering investment and insurance advice. They become life time clients.

  • Ron Butler on 2014-06-02 12:37:20 PM

    @ Brian, that makes sense, in the not to distant future enveloping the client in a complete financial planning program with all the ancillary services: insurance, investments, tax planning may be the most effective way to retain clients.

  • Brian Lambert on 2014-06-02 12:47:28 PM

    @ Ron: You are right. We all know the numbers. If you have a one product client, you will have difficulty in retain them. Two product client better retention. Three product client or more, they tend to stay with you and bring their family, friends and co-workers over too.

  • Adrian on 2014-06-02 6:12:11 PM

    Well said Brian.. The days of selling on rate went out with the garbage.. Service and value, cross sell and retain.

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