Monday, November 25, 2002
Consumers continue to renew home loans at posted rates, costing them thousands
of dollars, according to a new survey from the mortgage broker industry.
The survey, to be released today, found that 84% of consumers are staying with
their current financial institution when getting or renewing mortgages, a move
that is likely costing them at least one percentage point of interest as they
miss out on the financial benefit of haggling over rates.
Now 1% might not sound like much, but it could translate into more than $13,000
in interest per $100,000 borrowed over a 25-year amortization schedule.
That's the message the mortgage brokerage industry is trying to drive home to
Karl Straky, president of the Canadian Institute of Mortgage Brokers and
Lenders, which opens its conference today in Toronto, says the industry is
making inroads. While the 84% cited in CIMBL's fourth annual survey may sound
high, it was 90% last year.
"That drop of 6% is a big deal in the lending industry," said Mr. Straky.
More people are shopping around, he said, noting 11% of consumers renewing their
mortgage go to a broker, which is up from 5% in 1999.
Most consumers start out with good intentions, he said. The survey, which is
sponsored by Canada Mortgage and Housing Corp., found only 36% of consumers
intended to renew on their current lender offer but 63% actually did.
"More people are going to brokers than they ever did before for their renewal.
More people intend to shop around but the reality still is that the vast
majority of people renew at the current offer," said Mr. Straky.
What's the big deal? Mr. Straky says a large percentage of financial
institutions will simply send out a renewal form at the posted rate or close to
The current posted rate on a five-year closed mortgage is 6.7% as of Nov. 23 at
most financial institutions. Mortgage Intelligence, a discount broker, was
offering that same term for as little as 5.38% on the same day.
The full survey is to be released at the conference but a few other snapshots of
the results were provided to the Financial Post.
The results show that 57% of homeowners overall shopped around and received
different proposals from different lenders before deciding on a mortgage, up
from 46% a year ago.
"This is particularly striking amongst first-time buyers," said Karen Kinsley,
CMHC's vice-president of insurance and securitization. She said 57% of
first-time buyers shopped around this year compared with 39% last year.
The tradition of heading to the branch and sitting down with a bank manager is
also on the wane. The survey found 14% of borrowers arranged a mortgage during a
meeting in their home and another 14% said they made most of their mortgage
arrangements over the phone.
If Canadians are not going to mortgage brokers, it's not because they are not
familiar with them because 75% of the respondents said they understood how the
Bob Ord, president of Mortgage Intelligence, maintains that by not using brokers
consumers might be costing themselves up to 1.25% because the spread between the
posted rate and what is being offered on a discounted basis is growing.
"It's a pretty substantial amount of money either way," said Mr. Ord. "I think
people remain uninformed and that's why they are not shopping around. They
haven't had enough exposure."
Mr. Ord said the most interesting figure is the percentage of people renewing
with their same institution is shrinking. "Those people are walking elsewhere."
But the fact that 63% are simply renewing at the offered rate "shows we have
some work to do," Mr. Ord said.
The survey was based on a national sample of 854 mortgage consumers comprised of
first-time buyers, repeat buyers and those renewing a mortgage. It is considered
accurate to within 3.4%, 19 times out of 20.