Monolines are mortgage lenders that focus solely on mortgages. Whereas banks and credit unions have other loan types and products to sell, monolines are focused on home loans. Mortgage brokers are often able to obtain mortgages with ultra-low rates from these lenders, helping them get business from homebuyers looking for rates lower than the big banks can offer. However, if monolines begin raising their mortgage rates along with banks and credit unions, that competitive edge may disappear for brokers.
It's been widely reported that the Royal Bank of Canada increased its rates. The rate on four-year closed mortgages is set to increased 10 basis points, reaching 3.09 percent, while the rate on five-years will rise 20 basis points, reaching 3.29 percent. Meanwhile, the posted rate on a one-year mortgage is set to increase 14 basis points, reaching 3.14 percent, while two- and three-year mortgage rates are rising 10 basis points, reaching 3.14 and 3.65 percent, respectively.
The Toronto-Dominion Bank and Bank of Montreal have increased their rates as well. Additionally, First National recently raised its five-year fixed rate to 3.09 percent.
However, some brokers are confident that monolines will resist raising their rates, allowing brokers to continue offering borrowers the best mortgage rates.
"I do feel that the move by the banks to increase their rates will ultimately help brokers," Shawn Mooney, a broker from Alberta, told Mortgage Broker News. "When the bank's rates are similar to ours it is tough sometimes to grab a customer who is loyal to the bank and convince them to use one of our lenders they are unfamiliar with. It will at least grab their attention and give us a better fighting chance of winning those customers from the bank."
Mortgage brokers offer low rates, other services
As a study from the Bank of Canada titled Discounting in Mortgage Markets illustrated, brokers are often able to obtain lower mortgage rates for homebuyers. In fact, the study stated that mortgage brokers are able to reduce rates by an average of 17.5 basis points.
These savings can make keeping up with a home loan much easier for borrowers. Not only do lower mortgage rates mean lower monthly payments, they also mean less money spent on a mortgage overall, reducing the amount of money spent on interest instead of the mortgage balance.
Also, as Mooney pointed out, the expertise mortgage brokers can offer goes beyond low rates.
"Bankers don't really know mortgages," Mooney said. "Sure, they know a lot about banking, but not as much as a broker does. Their lack of expertise in dealing with mortgages is what's been driving clients our way for the last few years."
Obtaining a home loan can often feel overwhelming, especially for first-time homebuyers. Mortgage brokers are not only able to help with obtaining a mortgage, they can also walk buyers through the paperwork and unfamiliar terminology that accompanies a loan.
It's this service that has made mortgage brokers popular with many buyers, particularly those new to the real estate market.
Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, told the Toronto Star that while nearly a quarter of Canadian mortgages are obtained through brokers, new buyers opt for brokers even more, with the number reaching 40 percent.