If you were following my adventures from earlier in the summer, you know that I was looking at re-upping my mortgage. The choice ultimately boiled down to a Big Six Bank that I have a couple of accounts with versus the Manitoba credit union I’ve banked with in some fashion since I got paid for cutting their lawn when I was 12-years old.
Ultimately the choice became a pretty easy one once negotiations started. I managed to lock in my new term just before the recent rate hikes started coming into play, but even still, I found that the larger bank just couldn’t even come close to the interest rates being offered by my local credit union. This seems very counterintuitive to me since one would think that the Big Six Banks would be able to blow a relatively small competitor out of the water just based on economies of scale alone. When I was doing a bit of research on just why my credit union was able to offer such a low rate relative to the big boys who were raising their mortgage rates across the border Canada-wide, I came across this article over at Canadian Mortgage Trends (my favorite site for mortgage-related info). It has some interesting rationale about why credit unions are flush with cash and how they are able to lend money at such great rates. To me, it also means that the Big Six crew are making some pretty substantial profit margins – which dividend investors like our staff writer Young will tell you – are a good thing!
Service With a Smile
My experience with credit unions has been that they love to promote that they are “service-focused” in a way that only a small credit union can be. Sometimes this reality holds up, while other times the idea of a “small credit union” is a little ridiculous when you look at their assets and retail footprint. In my case, the credit union I bank with is still pretty small and I’ve known the branch manager personally now for years. Consequently, for me, the service advantage wasn’t just a marketing gimmick. The branch manager was able to promptly return my emails within a few hours every time, and I truly felt that during negotiations she was representing my best interests to her boss/manager.
Mortgage Transfer Fees Are Irrelevant
One final thing I was able to confirm during this mortgage process is that almost any lender you go to can be negotiated into covering the costs of moving your mortgage over to them. The people at the top of the food chains that set the policies for their financial institution aren’t dumb – they realize that they’ll easily make the money back on the mortgage (even one as small as mine), and that the vast majority of people will use the same bank that has their mortgage for the rest of their banking needs. I even stated this fact when I asked lenders for mortgage quotes in order to maximize my leverage. There have been numerous studies that show people who move their mortgage at the end of every term for the duration of their mortgage will save a pile of money over the years. Lenders will often try to scare you into staying in one place citing all kinds of fees and penalties if you move your mortgage at the end of your term (much different than breaking your mortgage mid-term btw), but in reality the fees are pretty manageable and every single institution I talked to said they’d cover any transfer fees, or at least fees up to $400 (which the finally tally wasn’t close to).
In the Canadian Mortgage Trends article I referred to above, the authors mentioned that it seemed weird that Manitoba credit unions seemed to be in a class of their own when it came to mortgage lending and that theoretically there was nothing stopping this sort of business model from taking root across Canada. Until then, I’m just happy I live in a place where the strength of that lending sector makes for a great competitive environment that I can take advantage of as a consumer.
Related: How Wrong We’ve Been About Mortgages
Oh, and my rate? I eventually settled on a three-year term at 2.59% with standard prepayment privileges and options for porting my mortgage. I thought about the ten-year, but since we plan to move in three years, it seemed easiest to keep things simple (and when I ran the numbers interest rates would have to rise quite a bit for my decision to lose out – it was a risk I was fine with taking).