Failure to haggle over mortgages means loss

Financial Post - Monday November 25, 2002

By Garry Marr

Costing thousands

Consumers continue to renew home loans at posted rates, costing them thousands of dollars, according to a new survey from the mortgage broker industry.

The survey, to be released today, found that 84% of consumers are staying with their current financial institution when getting or renewing mortgages, a move that is likely costing them at least one percentage point of interest as they miss out on the financial benefit of haggling over rates.

Now 1% might not sound like much, but it could translate into more than $13,000 in interest per $100,000 borrowed over a 25-year amortization schedule.

That's the message the mortgage brokerage industry is trying to drive home to consumers.

Karl Straky, president of the Canadian Institute of Mortgage Brokers and Lenders, which opens its conference today in Toronto, says the industry is making inroads. While the 84% cited in CIMBL's fourth annual survey may sound high, it was 90% last year.

"That drop of 6% is a big deal in the lending industry," said Mr. Straky.

More people are shopping around, he said, noting 11% of consumers renewing their mortgage go to a broker, which is up from 5% in 1999.

Most consumers start out with good intentions, he said. The survey, which is sponsored by Canada Mortgage and Housing Corp., found only 36% of consumers intended to renew on their current lender offer but 63% actually did.

"More people are going to brokers than they ever did before for their renewal. More people intend to shop around but the reality still is that the vast majority of people renew at the current offer," said Mr. Straky.

What's the big deal? Mr. Straky says a large percentage of financial institutions will simply send out a renewal form at the posted rate or close to it.

The current posted rate on a five-year closed mortgage is 6.7% as of Nov. 23 at most financial institutions. Mortgage Intelligence, a discount broker, was offering that same term for as little as 5.38% on the same day.

The full survey is to be released at the conference but a few other snapshots of the results were provided to the Financial Post.

The results show that 57% of homeowners overall shopped around and received different proposals from different lenders before deciding on a mortgage, up from 46% a year ago.

"This is particularly striking amongst first-time buyers," said Karen Kinsley, CMHC's vice-president of insurance and securitization. She said 57% of first-time buyers shopped around this year compared with 39% last year.

The tradition of heading to the branch and sitting down with a bank manager is also on the wane. The survey found 14% of borrowers arranged a mortgage during a meeting in their home and another 14% said they made most of their mortgage arrangements over the phone.

If Canadians are not going to mortgage brokers, it's not because they are not familiar with them because 75% of the respondents said they understood how the industry worked.

Bob Ord, president of Mortgage Intelligence, maintains that by not using brokers consumers might be costing themselves up to 1.25% because the spread between the posted rate and what is being offered on a discounted basis is growing.

"It's a pretty substantial amount of money either way," said Mr. Ord. "I think people remain uninformed and that's why they are not shopping around. They haven't had enough exposure."

Mr. Ord said the most interesting figure is the percentage of people renewing with their same institution is shrinking. "Those people are walking elsewhere."

But the fact that 63% are simply renewing at the offered rate "shows we have some work to do," Mr. Ord said.

The survey was based on a national sample of 854 mortgage consumers comprised of first-time buyers, repeat buyers and those renewing a mortgage. It is considered accurate to within 3.4%, 19 times out of 20.