How would you like to get two-thirds of the interest back on your mortgage?

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How Wealthsimple is trying to beat the big banks at their own mortgage game Back to video

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Here’s one quick way: Just drop $5 million into a Wealthsimple Inc. account.

Right, to the everyday Canadian, this sounds as appealing as a January dip in Lake Ontario, but stick with me.

Wealthsimple and Pine Mortgage have joined forces to offer online mortgages. They’ve got a deal through June 30 whereby they rebate a portion of your mortgage payments based on how much you invest.

I’ve seen mortgage cashback gimmicks in the past, but this one is more interesting. Unlike other lenders’ rebate offers, Wealthsimple’s calculator makes it easy to estimate the savings — and they have compelling savings options.

Of course, not everyone’s got $5 million lying between the couch cushions. Nor would most want to entrust Wealthsimple with that much money if they did.

But your average mortgagor might be interested in this deal nonetheless — for two reasons.

First, the rates are solid — especially on a default-insured mortgage. Take today’s five-year fixed insured rate at 4.79 per cent, for example. It’s 20 basis points above the lowest mortgage rate from a national lender, but the rebates can slash the effective rate if you invest enough.

Moving $650,000 to Wealthsimple, for example, would net you a 0.80 per cent rebate, meaning your payment would reflect an interest rate of just 3.99 per cent.

“You keep all your money with the bank, but they don’t really reward you,” says Pine Mortgage chief executive and co-founder Justin Herlick. “Now there’s a company that’s going to reward you to bring your money to them.”

You can use the rebates to accelerate your mortgage payoff or just spend and reinvest the money elsewhere.

Second, Wealthsimple is turning heads with its “Cash” account — offering up to five per cent interest, a marvel for a chequing account. Plus, it’s got no fees, no overdraft penalties, free Interac and bill payments, no foreign transaction charges, a one per cent cashback debit Mastercard and an automatic sweep feature to immediately invest incoming funds.

Given how easy it is to move money online, Wealthsimple could amass billions of dollars in deposits with this account, but it’s not perfect. The Cash account lets you write cheques, it but doesn’t allow you to deposit cheques or cash, though Wealthsimple is working on a solution.

And if you’re curious, Wealthsimple is not a bank. Instead, it has partnered with multiple Schedule-1 banks to hold cash deposits in trust. It spreads client funds across multiple banks to extend up to $500,000 in deposit insurance coverage. It also offers up to $1 million in CIPF coverage on investments.

Wealthsimple mortgage pros

A low rate can be meaningless if the contract terms put you in a straightjacket. Wealthsimple/Pine’s mortgages are mostly standard, with some notable restrictions. Here’s what you get:

• The rates are fully transparent, unlike certain large lenders I won’t mention with big office towers in Toronto;
• You can prepay up to 20 per cent of the mortgage annually without a penalty;
• You can port the mortgage to a new property to avoid penalties (they give you up to 60 days to port);
• You can increase the mortgage without penalties if you move to a more expensive property; and
• Wealthsimple/Pine’s penalty is gentler than the big banks’ when paying off a fixed mortgage early.

Wealthsimple mortgage cons

Here’s what borrowers won’t love as much.

For starters, the rebate is needlessly confusing. “It’s not a traditional interest rate buydown; the contract rate and the payment stay the same,” explains Wealthsimple’s vice-president of growth Simon Lejeune. “We calculate what the payment would be at the rebated rate, and pay the client a monthly cashback for the difference.”

In other words, when they say you get a “0.15 per cent” rebate, that’s a payment rebate. The equivalent interest rate savings is less. It’s more like getting 0.10 off the mortgage rate — still decent, mind you, but they sure as heck could’ve made this simpler and more intuitive by using real interest rate discounts.

Second, Wealthsimple’s mortgage lacks some bells and whistles you find elsewhere. Certain restrictions might be deal-breakers for some borrowers:

• You can’t port an insured mortgage to an uninsured mortgage. So if you get an insured mortgage and then buy a home of more than $1 million, for example, the mortgage is not portable and you’ll pay a prepayment penalty. Most big lenders don’t impose this restriction, which is a function of how Pine funds its mortgages.
• If you need to refinance before maturity, sorry, there’s no way to do it without a penalty. Many lenders let you add new borrowing to your mortgage penalty-free.
• Need a bridge loan for the down payment because your old house sale hasn’t closed? You’re out of luck (most mainstream lenders do offer bridge loans).

It’s worth noting that Wealthsimple offers two rebates, a “Client Rebate” of up to 0.15 per cent and an unlimited “Deposit Rebate” rebate (through June 30), equalling 0.05 per cent for every $50,000 you deposit with them. If you withdraw your money, the “Client Rebate” persists, but you’ll say goodbye to the “Deposit Rebate.”

In sum

If you want a high-yielding spot to stash your cash, need a mortgage and can handle the restrictions mentioned, Wealthsimple deserves a look.

Naturally, you’ll still want to shop around and compare its effective rate after rebates with what you can get elsewhere.

Any way you slice it, Wealthsimple/Pine’s new offer puts some heat on big banks, because they’re guaranteed to lose (some) assets to it. And that’s a win for consumers. In Canada’s tight-knit banking oligopoly, a shake-up in mortgage and deposit competition is always a breath of fresh air.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.

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