Why Mortgage Rates Vary from Province-to-Province

As of yesterday morning, you could get a 5-year fixed mortgage rate for as low as 2.89% in Ontario. Sounds great, right? Keeping that in mind, though, would it surprise you to find out the best 5-year fixed rate in BC was 2.84%? Or that homebuyers in Quebec were looking at a rate of 2.99%?

It’s confusing at first, considering that we know 5-year fixed mortgage rates are driven by 5-year government bond yields, but it seems as though mortgage rates still find a way to vary from province-to-province. I asked mortgage broker Rob McLister, from intelliMortgage and Canadian Mortgage Trends, to explain how this is possible.

“It’s not so much that mortgage rates vary from province-to-province,” McLister explained. “Mortgage rates vary from lender-to-lender.”

Individual lending institutions set their rates based on what their profit objectives are, how much competition they have, and what their marketing strategy is. We’ve seen how this works on a national level, when one of the big banks (BMO) launches a new low rate before the other big banks, so they can get some press and gain a little more of the market share.

On a provincial level, though, we often forget how many credit unions and small lenders exist in only one province. And if a small lender in one province sets a new low rate, there’s no reason for small lenders in other provinces to follow suit.

“If ATB Financial decides to offer one specific mortgage product or rate in Alberta, there’s no reason for an Ontario credit union to do the same, because they aren’t direct competitors.”

Then on a city level, it can also become a classic case of supply and demand.

In hot real estate markets like Toronto, where there’s a greater demand for housing and thus mortgages, there’s a need for lenders to supply the lowest mortgage rates, so they can compete for a portion of the market share and increase their funded volume. Compare that to somewhere like Yellowknife, where there are significantly fewer people, homes and real estate transactions, buyers have fewer lenders to choose from, so lenders can charge higher rates.

“And if, for example, there’s a little town in Newfoundland where one credit union has more of the town’s population as clients than any other lender, they have the ability to price their rates a little higher, because they have that relationship in the community and are the most likely lender to get people’s mortgage business.”

On top of the role lenders play in the setting of mortgage rates, you also need to factor in what the mortgage brokers who work with each individual lender choose to do with their commission. Some brokers choose to keep the full commission and others decide to split it with clients; this allows them to offer a rate slightly lower than the competition and gain more market share.

No matter where you live, all this means for you is that it’s extremely important to take the time to shop around for the best mortgage rate. If you’re in Ontario, you may not be able to get the same rate as someone could in BC, but you should still work with a broker who can find the best mortgage rate and product for you.