CIBC has followed Meridian’s lead and offered a nine-month promotional rate to mortgage clients, and brokers may feel the pinch to buy-down rate.
“They are a lot of smoke and mirrors; I’d prefer a much more even market but the way I look at it, on our broker side, unfortunately, it’s a race to zero,” Jivan Sanghera of Dominion Lending Centres
Home Capital Solutions told MortgageBrokerNews.ca. “Everyone is cutting commissions as a result to stay competitive.”
CIBC currently offers an introductory 1.99 per cent interest rate for the first nine months that changes to 2.83 per cent for the rest of the four year fixed-rate mortgage’s term.
Many brokers refuse to buy rates down to win deals, but the reality is that an increasing number feel they have to, at least in certain cases.
“More than anything I’m frustrated by teaser rates being offered by big banks and other lenders; these teaser rates are making their way back into the market,” Sanghera said. “These rates are all optics. Consumers are taking those products that aren’t available to the entire market.”
According to Denny Segal of of Dominion Lending Centres Origin, brokers generally have to take a 20 basis point commission hit to buy down a rate by 5 basis points.
He refuses to buy rates down. He does have relationships with lenders who will negotiation, though.
“Depending on the lenders and the volumes you do with them, there sometimes is the option of negotiating a better rate [that doesn’t affect commissions],” Segal said. “They would typically allow you to buy down 5 basis points.”
Meridian Credit Union, the largest CU in Ontario, offered an 18 month fixed-rate mortgage at 1.49 per cent in April, stoking the fire of an already heated rate war. It was the lowest posted mortgage rate in Canadian history.
However, brokers have found success in discouraging clients from taking on these promotional rates by outlining the overall cost for the entirety of the mortgage term.