Robert McLister: Banks have a reputation for not selling variable mortgages as frequently as brokers.
Growing Appetite for Variable-Rate Mortgages
Appetite for variable-rate mortgages keeps growing, depending on where you get your financing. Government data is hopelessly lagging, so I tend to check my real-time proxy for variable-rate demand: DLCG Mortgage Group (Dominion Lending Centres Inc.). They’re the nation’s largest mortgage company and close roughly one in 10 mortgages.
Through mid-June, DLCG numbers show 56.8 per cent of prime applicants opting for floating-rate mortgages. Not only is that up from 35.9 per cent in March, but it’s more than double the 25 per cent long-term bank average, according to Bank of Canada figures.
Banks vs. Brokers: Variable Rate Trends
Banks have a reputation for not selling variable mortgages as frequently as brokers, at least according to available anecdotal evidence. As of late, that trend seems to be continuing, particularly for creditworthy prime borrowers. In 10 out of the last 12 months, for example, DLCG brokers arranged a higher proportion of variables than banks for prime customers. Compared to DLCG’s 49.8 per cent prime variable-rate share in April, the latest bank data (also from April) showed that just 29 per cent of new bank mortgages were variable.
Why Brokers Favor Variables
For well-qualified borrowers, brokers lean more towards variables for multiple reasons.
Rates
When consumers shop around today, they see banks advertising variable rates like 3.95 per cent, whereas a quick check of a rate comparison website will highlight broker rates as low as 3.74 per cent. While a single bank may not have leading rates at the moment, brokers have dozens of lenders to pick from, maximizing the chances they’ll beat the average bank. Past research finds that most people get better deals at brokers, but banks have been catching up, particularly on renewals or when well-qualified borrowers negotiate. At any given time, there may be a few banks that sell for less to well-qualified borrowers on a discretionary basis; the challenge is in finding them. In any case, many rate-sensitive shoppers choose brokers for floating-rate mortgages because they perceive them as more competitive, which may skew their variable market share.
Qualification Ease
Brokers are the go-to source for harder-to-approve borrowers. They know which lenders are more likely to approve deals, and they understand that the rate you choose can affect your odds of success. Blame the design of the government’s mortgage stress test, which adds at least two percentage points onto your actual rate when a lender calculates your debt ratios. The result is that variable rates — which are usually lower — are more often easier to qualify for.
