Banks endeavoring to offer more up-front pricing

While the realty market is flooded with 5-year fixed offers of 2.99 per cent, a section of lenders are trying to fool people by marketing 3.99 per cent plus 'special offers'.

However, the good thing is that there are only few lenders engaged in such advertisements. Contrary to their bogus 'special offers', for several years, the banks are increasingly promoting rates that are within limits in advance.

For instance, the rise in bond yields during the last six years notwithstanding, TD Canada Trust has cut its online five-year rate down to 3.1 per cent - an increase of only 165 basis points over bonds. Traditionally, this is a slender margin as far as the 5-year price advertised by TD is concerned. In addition, its three-year rate is a straight 2.79 per cent, while the four-year rate is 2.99 per cent, which corresponds to the levels prevailing during the 'rate wars' in 2012 winter.

Another such example is the RBC, which has advertised a 3.29 per cent pricing, a better offer compared to five-year money. For now, the 3.09 per cent offer by BMO remains the lowest five-year six big rates advertised in Canada, although for a limited product. In fact, the Scotiabank too has marketed sound rates for chosen products, such as 2.79 per cent offer for 3-year fixed, in addition to another general offer of 3.99 per cent for 5-year fixed.

Sooner or later, the National Bank and CIBC too would follow suit.

Despite their proven flexible pricing policy, it is in the interest of the Big 6 to bring the inflated advertised rates to an end. Currently, the mortgage clients are more informed and the loads of data available online makes it very easy to benchmark the rates advertised by a bank against its rivals. Furthermore, with the introduction of websites offering rate comparisons, the consumers are really unenthusiastic towards mortgagees offering 3.99 per cent against the actual market rate of 2.99 per cent. The consumer must either lack qualifications or be tricked to make one accept the 3.99 per cent rate.

The market will change when every major institution shifts to sensible advance pricing. Their advertised rates would be nearly the same as that of discount lenders and brokers, enabling the consumer to bargain a lower rate. However, it is difficult to guess when all the banks will offer everyday low interest rates. In 2002-2004, TD made an effort, while BMO did so in 2005-06, but they were short-term experiments.

As far as the banks are concerned, the discounted rates may turn out to be a pre-spring issue and will let down the consumers when they return to their 'special offers'. Again, it may not be true. Therefore, it is important to keep an eye on the developments during the ensuing months. However, it is completely sure that in the long term the banks will make them more competitive and show it too.

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