What Is the Difference Between Posted Rates and Actual Rates?

Given the current market conditions , Canadians are more concerned than ever with securing the best rates on their mortgages. In a world of subsequent rate hikes, is it still possible to achieve a great deal? In this guide, we hope to arm you with the knowledge you need to succeed in the mortgage market, and help connect you to the best rates your lender can offer.

What is a Mortgage Rate?

A mortgage rate refers to the percentage of interest expressed as a portion of the borrower's principal mortgage amount that must be paid to the lender in the form of regularly scheduled instalments, on top of the original loan amount. Because lenders assume significant financial risk when they grant a borrower a mortgage loan, they charge their borrowers interest payments to offset this risk, and to help guarantee they benefit from the transaction.

Given that the goal of an interest rate is to offset risk, the more likely you are to default on your mortgage, the higher your interest rate will be. You can often qualify for more favourable interest rates by presenting a good credit score, a strong debt repayment history, and a stable source of significant income. For more information, check out our top tips for saving on your mortgage .

Furthermore, there are three different types of mortgage rates: fixed rates, variable rates, and adjustable rates. A fixed rate is an interest rate that remains the same for the entire term of the loan. This means that the borrower's monthly payments and amortization period will remain the same over time until the borrower goes through a mortgage refinance or repays all or part of the mortgage. A variable rate is an interest rate that can change over time, typically in response to changes in a benchmark interest rate, such as the prime rate. This means that the borrower's amortization period, and even monthly payments, may change over time. An adjustable rate (also known as a variable-rate or variable-rate mortgage) is a type of home loan for which the interest rate can change periodically based on the prime rate, and the monthly payments will change accordingly while the amortization period remains constant.

Posted Rates vs. Actual Rates

If you are currently in the market for real estate, you may have noticed that most major lenders—such as the big banks—will publicly post their fixed and variable mortgage rates online. These rates are often referred to as a lender’s “posted rates.”

Some walk-in clients looking to borrow a mortgage from these lenders will accept the 5-year posted rate, even though they can be absurdly inflated. In fact, most banks, credit unions, and independent lenders are willing to offer rates up to a full percentage point lower than those posted publicly online. It is up to you, as the borrower, to negotiate these rates down in order to receive a better deal. Some lenders argue that posting inflated rates allows borrowers to negotiate the rates down, which then makes them feel as though they are saving money on their mortgages—increasing overall customer satisfaction.

There are some rates, however, that can only be accessed by a mortgage broker. These rates are not made available to walk-in clients, but they may represent the lowest rates a lending institution is willing to offer. This is what is known as the “actual rates.”

If you are looking to access the actual rates, you might be best served by working with a licensed mortgage broker. Most lenders have partnerships with a variety of brokers, and will only offer their lowest rates through those channels. Experienced homebuyers may be aware of this trend, thus benefiting from the actual rates, but new homeowners may find themselves not negotiating with lenders and instead paying the inflated posted rates.

Your Guide to Saving Money on Your Mortgage Payment

If you are looking to minimize your overall interest fees, and save money on your monthly payments, there are a few different approaches you can take. Here are a few strategies you can employ to set yourself up for fiscal success:

1. Shop around: Before agreeing to a mortgage, it is a good idea to check mortgage rates from many lenders, such as banks (TD, BMO, CIBC, RBC, Scotiabank, etc.), credit unions, and mortgage brokers. A larger data set will give you a better understanding of the current mortgage rates on the market and enable you to locate the best rate for your needs. Often times, alternative lenders have fewer restrictions than the big banks. It is a good idea to look into what set of restrictions applies to you.
2. Compare different mortgage products: Our team of Clover Mortgage brokers have experience working with over 100 different mortgage products, each with a unique set of terms and restrictions. You may be able to obtain a mortgage with a cheaper interest rate and more favourable conditions by comparing different lenders and their respective product offerings. Many Canadians will renew their mortgage with their current lender without taking the time to shop around and compare rates. By considering a variety of different mortgage products, you may end up saving thousands of dollars in the long run.
3. Improve your credit score: Your mortgage rate may be significantly impacted by your credit score. Due to their perception of a lesser risk, lenders frequently provide cheaper mortgage rates to customers with strong credit scores. By paying your bills on time, reducing your credit use, and avoiding making several credit requests at once, you may raise your credit score. Once you are ready, you can apply for a mortgage with your newly improved score and hope that your application is accepted at a lower rate and not withdrawn as it may have been if your credit score was low.
4. Negotiate: You should never be afraid to negotiate the mortgage rate and terms with your lender. The rates posted by banks and credit unions are meant to be negotiated down, and most lenders have accounted for this in their pricing schemes. If you have a good credit score and a strong financial profile, you may be able to negotiate a lower interest rate or more favourable terms. If this is the case, you will receive notice of any changes made by your lender post-negotiation.
5. Work with a Clover Mortgage broker: Our team of brokers can help you compare mortgage rates and products from our vast network of over 50 lenders. We can also take on the bulk of the accounting analysis required to devise an ideal payment plan, making things more simple for you. These measures will not only save you time, but can help you find the lowest rate, as well as terms that are aligned with your current mortgage needs.

Ready to start shopping around for a mortgage? Contact Clover Mortgage to book a free consultation, and lock in your low rate today!