Mortgage wars, 2016 edition

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Meridian Credit Union is offering a one-year 1.69% fixed mortgage rate – which might be the lowest fixed rate currently on offer in Ontario.

And which clients would be the biggest beneficiaries?

“Definitely not first-time buyers, who would likely have to qualify for a five-year fixed rate,” Drew Donaldson, executive vice president and broker with Verico Safebridge Financial, told MortgageBrokerNews.ca. “I could see an investor-type buyer who doesn’t mind taking the risk year-to-year being drawn to this product.”

Clients must visit a Meridian branch to qualify, since the product isn’t being offered through the broker channel.

Meridian announced the product on Tuesday, noting a strategy that is currently going against the trend of rising fixed interest rates.

"As a Member-owned financial institution, we are able to take advantage of the current bond and lending environment and pass those savings onto our Members," Bill Whyte, chief member services officer for Meridian, said in a release. 

The product has already earned coverage in the mainstream media and has likely piqued the interest of homebuyers. Some of whom may be a good fit for the product.

“We can complain about these offers all day but there are still clients that this rate will suit,” Donaldson said, saying he estimates the product would be the perfect option for about 5% of buyers. “Clients have to ask the right questions about it, though, such as what the penalties are.”

Those penalties, according to a Meridian representative, are fairly standard.

“If a member wanted to break out of this mortgage, Meridian’s standard penalty calculation would apply,” Diane Medeiros, manager of media and stakeholder relations, told MortgageBrokerNews.ca in an email. “Both collateral and standard charge mortgages are eligible.”

It seems each year, just before spring, one lender kicks off the season with a super-low interest rate offer. The mainstream media responds, kicking up a fuss and – much to the chagrin of many brokers – bringing the mortgage conversation back to rate.

Meridian has made headlines before for its promotional rate offerings.

Just this past October, the Ontario-based credit union offered a five-year closed variable rate mortgage for 1.85%. And last April, it offered an 18-month fixed-rate mortgage for 1.49%.
  • John Van Driel on 2016-02-03 9:53:50 AM

    Does this spell the end of their broker channel offerings? Are they going the way of 3 of the big banks? If not, you would think this would be offered through brokers at a discounted finders fee!!

  • Julie Stamp on 2016-02-03 10:06:21 AM

    In my opinion, modt Canadian consumers will not find a one year fixed rate beneficial even at a lower rate, this puts them at risk of potentially even higher rates next year when this mortgage term expires, you have to seriously weigh your realistic options before taking a short term mortgage of only 1 year, short term gain vs. Potential long term loss. Also to qualify for any Mortgage other than a 5 year fixed in Canada, you must qualify the client on the Bank Of Canada's posted rate , currently at 4.64%, not as noted above on 5 year rate. Not all buyers will qualify on this higher rate, dependent on their circumstances. To obtain a Meridian mortgage the customer must be within 30 minutes of a branch location, Meridian has a limited number of branches in larger urban centres so any clients falling outside of this location requirement will not qualify for a mortgage with them. This seems more like a teaser rate to hook the client into their system, similar to so many low interest rate advertising found on the Internet. In conclusion I believe this is a product that is only suitable to a very small niche market and likely not in the best interest of Canadians long term goals when it comes to their Mortgage goals.

  • mortgage nerd on 2016-02-03 12:52:23 PM

    I agree with Julie Stamp. In my oppinion this would be no different than a teaser rate on 5 year fixed. Actually, it's worse because its harder to qualify for and you have no idea what the rate is at the end of the first year.

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