This is a common question that we get. Why do lenders offer different rates to different clients?
There are several factors that go into what rates are offered to clients. Lenders look at credit, income, property condition, whether the property is a personal home or an investment home (rental), whether the mortgage is insured or not, and the overall strength of the application when offering rates to clients. Lenders also have internal differences in how they underwrite each mortgage application.
If your credit isn’t as strong as your friends, that could impact the rates and products you are offered. Similarly, if your income is not easily verifiable, or you are self employed, these factors may also affect the product, and accordingly, the rate, that you are offered when compared to someone who is on a traditional salaried employment.
Another reason is that you will generally see lower rates advertised for mortgages that are insured vs non-insured ones. Lenders have more security when one of Canada’s three mortgage insurers take on the risk of the mortgage loan. Now this can be a blog subject of its own. But for a simple explanation, think of your interest rate as a reflection of overall risk which is what lenders are assessing when they underwrite your application. What is the likely hood that you will be able to honor your mortgage contract? Accordingly, from a lender’s perspective, the lower the risk, the greater the savings. Lenders actually save money when a loan is insured, and they pass on those savings to borrowers that are ultimately paying the insurance costs on these loans.
The reverse is also true. Investment loans are considered to carry greater risk than a mortgage provided for shelter. In other words, from a risk perspective, lenders have determined that borrowers are more likely to ensure timely payment on a property that puts a roof over their head, even in tough times, than on a property which is for investment purposes. Accordingly, most lenders will increase the rates for rental properties, when compared to their best rates for properties that are owner occupied. Typically, the best rates you see advertised on the market are generally for owner occupied (and most likely insured) mortgages.
There are other factors which may contribute to why the rates (or products) offered between clients are different. Maybe your situation requires a specific underwriting policy that a better priced lender does not offer. In such a case, you may be advised that you may not qualify at the better rate option, but you do qualify at the slightly higher rate option. That’s a significant difference in outcomes.
All this to say that there are many reasons why products and rates differ between solutions offered to borrowers. However, the reasons should always be discussed with you transparently, so you are aware of all the options that apply to you, and discuss if changes can be made to better the outcomes. If not now, for the future. Your conversations with you mortgage advisors should be holistic, and, as the person you are consulting is titled, they should be ADVISING you for the best possible outcomes. Not just to achieve your goals today, but set you on the right path for tomorrow’s planning as well.