To say Canada’s mortgage market is cutthroat is an understatement.

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RBC, Canada's mortgage lending giant, admits that a rates war is being waged Back to video

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During a conference call yesterday, Dave McKay, chief executive of Royal Bank of Canada (RBC) — the country’s biggest mortgage lender — confessed that RBC is battling through what he called “historic” and “intense competition.”

In fact, RBC’s mortgage business is earning just a third of what it used to earn, he explained.

“Our mortgage business is seeing low interest margins driven by a volatile cost of funds and competitive pricing pressures,” the company added in an emailed statement today. “We believe these trends are impacting the entire industry.”

And RBC is right. They are.

In an urgent bid to preserve market share amid elevated interest rates, high debt loads and feeble real estate activity, banks are pulling out all the stops. Seemingly, every mortgage broker I talk to recounts tales of customers being quoted astonishingly low rates by their bank.

Yet, you wouldn’t guess there’s a rate war based on what’s being advertised.

For example, if you survey every national lender at the moment, the average conventional published rate on a three-year fixed mortgage is 5.58 per cent. That’s a cringeworthy deal compared to the best nationally-advertised offer on an uninsured three-year: 4.84 per cent from Pine Mortgage.

Picture an unsuspecting first-time buyer trusting their lender and signing up for an inflated rate like 5.58 per cent. With the average first-timer getting a $410,000 mortgage, according to Equifax Canada, that blunder would cost them $8,834 over 36 months.

More than ever, this screams the need for comparison shopping. But while you’re out there rate hunting, beware of wolf deals in sheep’s clothing. Some “special offers” are bare-bones mortgages that trap you without porting or refinancing options.

That may not sound like a big deal, but a broker I work with recently shared a cautionary tale that resonated. One of his customers was offered a “value” mortgage at renewal by his bank. The borrower simply took the deal because he didn’t have to re-apply, and the rate was a little lower than what he saw online.

Fast forward two years, and the guy needed to refinance early. The catch? The “value” mortgage he agreed to didn’t allow refinances without a heavy penalty.

The kicker was, he could’ve chosen a slightly pricier option from the same lender that permitted penalty-free refinances. In the end, he saved $2,100 on interest over two years, only to be slammed with a $23,000 penalty. Ouch.

Chasing ‘deals’

Borrowers typically save more by choosing mortgages with flexible contracts than those with small upfront rate advantages. Here’s a golden rule: if you’re eyeballing two rates and one’s tied to hefty prepayment fees, tight portability or refinance restrictions, avoid it like a telemarketer if the saving is less than 10 to 15 basis points.

The only time to consider the less flexible option is if you’re absolutely sure your financial needs won’t change throughout the entire mortgage term. And I can tell you that in the 17 years I’ve been doing this, the majority of people who say they won’t change their mortgage before maturity, do. Surprises happen, whether they be an unexpected need for funds for debt consolidation, investment purposes, education or emergencies, or an unexpected relocation, job loss, split-up or illness.

Where to look

No lender wins a gold medal for the best overall deal across all terms. Sniffing out the lowest borrowing cost takes legwork: researching online, consulting a broker or two, and verifying terms directly with your shortlist lenders.

As a general statement, brokers currently dominate in the default-insured rate market. But banks have hijacked their picnic in the uninsured space, particularly for three-year terms that the majority of borrowers clamour for, and especially on renewals.

In the old days, lenders practically made a sport of blindsiding borrowers with high rates at renewal, betting they were too uninformed, comfy with their bank, or couch-locked to switch lenders. Those days are gone. Most banks are fiercely aggressive with customer retention unless they think you can’t qualify elsewhere. Wave a better offer from another lender and watch them spring into action. They simply can’t afford to lose existing customers in a low-volume market.

All this competition may not make bank shareholders happy, but it’s sure working in consumers’ favour.

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

The rates displayed below are updated by the end of each day and are sourced from the Canadian Mortgage Rate Survey produced by MortgageLogic.news. Postmedia and Imaginative. Online Inc., parent of MortgageLogic.news, are compensated by certain mortgage providers when you click on their links in the charts.