HSBC Canada’s mortgage business has taken a permanent vacation. Royal Bank of Canada just gobbled it up in the biggest domestic bank merger in Canadian history. Good for RBC. Bad for Canadian mortgage shoppers.

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Why the loss of HSBC leaves Canada's mortgage market less transparent Back to video

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As a result of the deal, which was completed last week, the leading nationally advertised rates have risen on multiple uninsured mortgage terms. Last week’s lowest published variable rate, for example, was HSBC’s 6.55 per cent. Today, it’s a less palatable 6.69 per cent from Scotiabank eHOME.

Before RBC’s takeover, HSBC was routinely Canada’s most aggressive, transparent lender. For eight years, I’ve been reporting on HSBC’s leading rates. No more. 

While it may not have had enormous market share, the bank served a vital function, keeping competitors honest with their published pricing. Now that HSBC is gone, banks don’t need to be as aggressive with the rates they let you see (more on that in a moment).

We’ll have to wait to find out if a new torchbearer takes the title of most transparent lender. Advertised bank rates are awful relative to those brokers can secure, with only Scotiabank’s eHOME online division being semi-reasonable.

For now, mortgage brokers are leading the way, led by price-slashers such as Butler Mortgage, Citadel Mortgage, True North, Ratehub and Nesto. While the lowest advertised bank rate is 6.69 per cent for an uninsured variable, Butler advertises effective rates as low as 6.10 per cent, including a cash rebate. The rate is higher if the mortgage is less than $650,000 or the closing is more than 45 days away, but it’s still considerably less than the offers advertised by banks. 

Just keep in mind that shelling out a bit more to a traditional broker may get you sager advice, zippier service and more approval options.

Elsewhere, borrowers are finding fat discretionary discounts from banks such as Toronto-Dominion. The green chair lender is flush with deposits and on a market share binge. According to BMO Capital Markets bank analyst Sohrab Movahedi, TD is the Big Six leader in real estate secured lending (RESL), boasting seven per cent growth in the first quarter. Movahedi says TD is hungry to grow its RESL portfolio to $500 billion — from $384 billion in the first quarter — and borrowers are the beneficiaries.

HSBC was different

All the big banks have hidden “discretionary” deals, but HSBC was a different beast. Its rates were transparent, meaning HSBC borrowers didn’t have to guess or negotiate. Contrast that with the Big Six banks, where you have to play games to get their best rates. That’s OK if you like to haggle and waste time, but overpaying is almost a given for those who don’t like to dicker. 

And God help the poor souls who simply sign their renewal letters.

“Look, people must get clear about shopping around at renewal,” says discount mortgage broker Ron Butler. “Today, all banks’ initial offers are 30 to 50 basis points too high.” (One basis point is one-hundredth of a percentage point.) 

“Everyone needs ammunition to challenge their incumbent lender … a quote from another lender for leverage,” Butler says. “Otherwise, they’ll end up with too high a rate.”

Worse off are those uninsured borrowers who can’t switch lenders because the government’s mortgage stress test traps them.

The stress test makes uninsured borrowers prove they can afford a rate at least 200 basis points (bps) higher than the actual rate they pay. If you’re up for renewal and can’t pass that test, you’re handcuffed to whatever potentially lousy rate your lender feeds you. The problem is bad enough that Canada’s Competition Bureau had to ask Parliament to exempt uninsured mortgage switchers from the stress test. We’ll see if the Department of Finance, political pressure or legislation sways our bank regulator to do something about it.

Back to HSBC. It was able to compete aggressively on price because it had ultralow funding costs and because it offset mortgage discounts with revenue from other products, such as investments. That’s a unique model we may not see again for many years.

Parting tips

If you’re coming up for renewal or negotiating a new mortgage, here’s a game plan for getting a better deal:

• Maintain a credit score north of 720 (many lenders use 680 to 720 as minimum scores, while a growing number have minimums like 750 or 800 for their best rates).
• Pay down non-mortgage and non-automotive debts to 30 per cent of your credit limits, if possible, to boost your credit score.
• Keep monthly debt payments and housing costs (mortgage payment, heating, property taxes and half your condo fees, if any) below 44 per cent of your household’s gross monthly income.
• Ensure you have no missed payments in the last few years
• Charm at least two mortgage brokers into a bidding war for your business. Ask them to beat what you see elsewhere for a mortgage with equal or better features.
• Try to get all competing rate quotes in writing.
• Start shopping four months before your expected closing date, but realize the best rates are sometimes for closings within 30-45 days.
• Make sure your lender will reset your rate if rates drop before you close.
• Never take a lender’s first offer — it’s just a warm-up.
• If you’re risk tolerant and have a comfortable financial cushion, consider a shorter or floating rate (like a three-year fixed if the mortgage is uninsured or variable if it’s default insured). 

Every 10 bps you save per $100,000 of mortgage saves roughly $480 over five years on a 25-year amortization. Translation: Lace up for some serious rate shopping — it pays.

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