Your client’s mortgage size may determine their interest rate

by REP30 Nov 2015
by Lyle Adriano

It may sound unfair, especially to those with smaller mortgages, but it is usually those with six-figure mortgages that have the lowest rates. There are a couple of very good reasons why this is the case, and your clients might want to keep them in mind the next time they are looking into getting a better deal.

First off, you have to keep in mind that lenders are trying to run a business, and will always look to make a profit. If your client takes out a huge mortgage, lenders will think that they will have more assets to invest with them, and thus incentivise the large loan by offering some of the more competitive rates in the market.

Clients should also take into consideration that mortgage brokers earn commissions like bankers, so the bigger the mortgages they handle, the bigger their commissions are.

Indeed, when shopping for mortgage deals in rate-comparison websites, you might see minimums such as “For mortgages of $300,000 or more.”

Secondly, lenders always have to deal with risk, and thus have to be judicious with their transactions to avoid losing too much. This is why even those with a 5% down payment are treated with better rates than those with small mortgages without down payments.

Even if your clients have a huge amount of home equity, that does not mean they carry less risk to a lender, especially to those banks who also deal with investors.

Mortgage insurance naturally has a cost; for mortgages less than 80% of the property’s value, the lender usually must pay for the fee, otherwise it’s the borrower who pays the premium. Because investors typically take out insured mortgages that they have paid for (saving lenders from having to pay), lenders tend to favour such clients over homeowner customers, and offer the investors lower rates.

If your clients are looking for ways to get lower rates while maintaining a small mortgage, they might want to renew with their existing lender. Research on the rates of their lender’s competitors, and use the information to bargain for a deal better.

Alternatively, switch to a lender that does not set a mortgage minimum. Do not forget that if your client has other business with your bank or credit union, you could use them to your advantage to curry favour from a prospective lender, who is more than willing to take on all their banking needs.

COMMENTS

  • by Matt 11/30/2015 1:00:53 PM

    This is contrary to what I've been experiencing when it comes to investors. I have a few clients who invest in several properties as rentals, and lately anyways, the lenders are giving them a harder and harder time. It seems (from my experience anyways) that the more properties you own (single detached homes, duplex, and triplex), the higher risk you are, and therefore experience more difficulty securing additional financing.

  • by Really?? 11/30/2015 11:10:47 PM

    This article is a complete rip-off of this Globe story a week before: http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/got-a-small-mortgage-why-youll-likely-get-a-lousy-rate/article27433928/

    Disgraceful.

Poll

Is a Toronto foreign sales tax a good idea?