What are posted rates? What can posted rates mean to you?
What are posted rates? What can posted rates mean to you?
Posted rates, what are they anyway? Below I will try to outline what they mean to you and why they are important to be aware of.
Posted rates are interest rates that most all of the big retail banks (e.g. RBC, BMO, HSBC, CIBC, Scotia, TD) use and advertise as their baseline rates for various products (e.g. loans, mortgages, etc.). These rates can be somewhat compared to MSRP prices for cars in that it is the rate/price that by default is advertised to current and potential clients/customers. However, there can and likely usually is room for negotiation below these rates/prices in most cases with the bottom rate being the “discounted” rate.
I would specifically like to talk about the times and cases when a person unknowingly or inadvertently has accepted a mortgage with a posted rate and not known that they could have likely received a much lower rate either at the same institution or an alternative one, for the same product. This is something that happens quite often so I believe it deserves some attention here.
How can this happen then that someone be given or accept an interest rate that is higher than what they are eligible for? There are many ways this can happen and I will try to outline at least a few below.
- Lack of awareness, education, and/or not having a professional advocate on your side, working for you, and what is in your best interest, no pun intended. People to no fault of their own are busy. Banks are also in the business of being profitable so if they can charge a higher interest rate they likely will try. This is not to say that it happens all of the time but what I am saying is that a big bank will likely not go out of its way to provide a lower interest rate than they feel they need to get or keep business.
- At the time of your mortgage term renewal (i.e. end of your 3 year, 5 year, or whatever term you initially or last chose). People often forget about their mortgage as after it has been set up it simply runs in the background, payments are automated from your chequing account, and overall most people are very hands with their mortgage. Big banks can take advantage of this by not reminding you ahead of time that your term is coming due. It is not uncommon for a bank to notify you with only a couple of weeks before the term is over and they may do this through a letter in the mail only with a renewal letter enclosed for to sign and return. What is sneaky about this is that only posted rates are typically offered and the bank can be hopeful that you just tick the box for the term you want and that you sign and accept the posted rate. I do not like this practice for a two reasons. One is that you have very little to no time to consult, think about, or plan any changes that would be beneficial to make to your mortgage at the time of renewal to can save significant amounts of money over time. With all of my clients I contact them three months before the end of the term to start talking about their plans over the 1, 3, 5, and 10 years to see if there are opportunities to save with their mortgage. The second thing I do not like about this practice is when a client accepts the renewal letter they likely did so trusting that the bank was offering them the rate they deserve, which is not necessarily the case many times.
- As mentioned it is the big retail banks that typically work off of these posted rates. There are however, many non-retail banks (banks that do not want your daily banking or maintain brick and mortar branches) that do not have posted rates at all. These alternative banks deal with only one set of mortgage rates which are equivalent to or even slightly lower than a big bank’s discounted rates. A discounted rate is likely the lowest possible rate for a given product, so the rate a client typically receives from a big bank is somewhere between the discounted rate and posted rate. It may sound a bit counter intuitive, however, when a client purchases a home and gets a mortgage they are more commonly given a respectable discounted rate for the product they chose. However, when renewing that same mortgage, at a big bank, it is commonly first tried to get a client to renew at a posted rate (for reasons mentioned above). A way to avoid this game entirely is not deal with banks that work off of a posted rate, discounted rate model, of which there are plenty to choose from and are all good choices.
- Last but not least, and slightly alluded to in point “1″, to best protect yourself from a posted rate problem, work with a professional who is working for you, not a big bank. An independent mortgage broker is working for you, for free, and is only compensated by the banks (retail and/or non- big retail) if we bring them good and valued clients like yourself. This posted rate issue should be a point of consideration when choosing which bank is best for you to have your mortgage with as it can create problems and expenses down the road. I am often finding it is the most simple for clients, with no need to worry about how they will be treated in the future, all while receiving as good but likely better customer service, to go with a non-retail bank for ones mortgage.
Posted rates also have a huge role in the calculation of penalties to get out of mortgage, something that many are learning about currently. However, as this post is already quite long, please email me or call me to learn more about this. I will say though that if a bank uses posted rates in the calculation of a penalty it is likely bad news as it will cause the penalty to be much larger.
For more information on this or a related topic please contact me at anytime.
(604) 603-2520 | Maury@MauryLum.com |
