For many consumers, their mortgage journey begins and ends at the bank branch. They call, get a quote, and maybe get one from a competitor just for safety. But what a lot of people don’t realize is the actual mortgage rates you can get are much lower than the rates the banks post.
Ratehub.ca is the leading website Canadians rely on to compare mortgage rates. We shop the best mortgage rates every day, and put them online for everyone to see. And because we’re displaying the mortgage rates most Canadians with decent credit can actually get, we see something others don’t – what choices consumers make when they have perfect information.
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That’s why we released the Digital Money Trends Report. It’s an in-depth look at how Canadians make choices about their personal finances, combining real user data, surveys and search information to cover credit cards, saving and investing, and mortgages.
Here are a few of the things we learned about mortgages:
Canadians are searching for mortgages online
When you buy a house, you’re borrowing more money than you’ve ever seen in your life and you want to be sure you understand everything that’s involved. That’s why we’re not surprised to see Canadians search for mortgage-related terms online more than 700,000 times a month. Among those searches, people are most interested in mortgage calculators, mortgage rates, and the Big Five banks who do the lending. When consumers use Ratehub.ca to compare mortgage rates, most still use a computer at some point in the process, but mobile is becoming more and more popular. Thirty-seven percent used a smartphone or tablet to search rates last year, and that number is going up.
It pays to compare mortgage rates
We already know this, but just how much can you save? We took a look at the last few years and since 2012, the best five-year fixed rates advertised on Ratehub.ca have been an average of 223 basis points (2.23 percentage points) lower than the rates posted by the banks. If you had a mortgage of $500,000 amortized over 25 years, the difference translates to a savings of $53,089 in interest over a five-year period. We know most people get a discount from the posted rate regardless of how they get their mortgage, but this shows how every point counts, and you can really save yourself thousands of dollars by doing your research and comparing mortgage rates rather than going to the bank branch.
Variable rates are gaining popularity
There are two major kinds of mortgage rates: fixed and variable. Fixed rates stay locked in, and don’t change for the length of your term. Variable rates are linked to the prime rate, which is based on the overnight rate set by the Bank of Canada. Variable rates are usually lower than fixed rates, but they carry some risk. And that’s a risk Canadians have been increasingly willing to take. In 2012, only 16% of our users opted for a variable-rate mortgage. That’s jumped up to 42% in 2015. We know variable rates have historically been the most cost-effective option, and we’re happy to see our users have been able to use them to save money.
We’re locking in for five years
Whether you choose a fixed or variable rate mortgage, your lender will ask you to commit to a term – the length of time you’re locked in to the mortgage. In Canada, most new mortgages are amortized over 25 years, but most mortgage terms are for five years. In 2015, a total of 81% of user requests for mortgages were for five-year terms. About 12% of requests were for fixed-rate terms of two, three, and four years. And since 2012, we’ve seen a decline in the popularity of the 10-year fixed term – from 13% then, to less than 1% now. We also see a lot of users looking to find out what it will cost to break their mortgage, but that’s a conversation for another day.
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