Thursday, May 1, 2008

Unsecured Line of Credit Poll Results

Thanks to everyone who commented on yesterday’s post with their unsecured line of credit interest rates. The results are hardly scientific, but I have enough data to give people some idea of how their own interest rate compares to others.

The average interest rate was prime+1.7%. Most of the interest rates were between prime+1.5% and prime+2%. There were outliers at prime+0.5%, 1%, and 2.5%. (I didn’t count the response from the anonymous reader who has a line of credit at prime because it seemed to be connected to a brokerage account and I wasn’t sure if it was for margin.)

I didn’t get any responses pointing me to resources to explain what rates consumers can expect. Maybe such resources don’t exist. I suspect that consumers would get better deals if they had some way to compare lending institutions on the interest rates they charge for unsecured lines of credit.

Mortgages

It’s a different story for mortgage interest rates. CanadaMortgage is one of many sources for advertised mortgage rates in Canada. Based on these rates, it’s hard to understand why anyone would get a mortgage from one of the big 5 banks.

Just to pick two examples, both ING Direct and PC Financial beat the big 5 banks’ mortgage rates by between 1% and 2% for every term from 1 year to 10 years. I can understand why people might prefer to do most of their banking with a big familiar bank, but what does it matter who holds your mortgage?

There were fewer choices back when I had a mortgage, but I was willing to go with just about any institution that offered me a low interest rate. I cared who held my money, but I didn’t care as much who lent me money.

Is there some good reason why people choose one of the big 5 banks for their mortgage? Maybe they are able to negotiate the bank’s interest rate down by more than 1%. Or maybe the newer financial companies offering the low rates have strings attached like having to open bank accounts and get credit cards.

I’d like to hear from anyone who knows of a good reason to get a mortgage from one of the big banks. Without an explanation, it seems that people are simply making uninformed (and expensive) choices.

4 comments:

  1. I've always wondered what the logic is behind the posted rates since not many people pay posted. I think 1% off of posted is almost a given if you just walk through the door.

    Depending on the client, the big banks can match rates on occasion. I know of someone who had their ING rate matched by one of the big five, with little hassle.

    I know they have quotas, but sometimes they will eat further into the rate if it means your company's business accounts are held at the bank (or you hold your RRSP at the branch where they get a cut of the MER). So that's one reason - but you might be losing out elsewhere.

    I have no retail banking experience so I can't say for sure, but I believe that if you go in end of month you might get a better rate as quotas have to be met. Even better is if you go in end of October at the fiscal year end for all the banks.

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  2. I'm just about finished my mortgage negotiations, and surprisingly will be sticking with my big bank.

    I started by going to a mortgage broker and was offered a rate that I through the bank would never match.

    I had already been contacted by my bank to set up an appointment, so I kept it, out of curiosity.

    Much to my surprise they initially matched the offer, and after a little more negotiation beat it, and added some free banking and a lower rate on my line of credit.

    I gave the mortgage broker a second chance but they couldn't do enough to match what the bank finally offered.

    My feeling is that the competition from the mortgage brokers is starting to pinch so they are changing their policies to be more competitive.

    That said, they won't give you anywhere need the best rate until you've had a better offer from somewhere else. It really does pay to shop around.

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  3. Not a good reason, but all the "published" big banks rates are negotiable, just ask a Mortgage Broker. You can negotiate yourself too, just be willing to walk away and you'll be fine.

    I'd rather not have "Guido the Killer Pimp" holding my mortgage, but most other folks are ok.

    --C8j

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  4. To add to preet's comment, I've had a big bank that shall remain nameless give me the "well we could give you a better rate if you had your mortgage with us" line, when applying for a line of credit. This same bank had everything but by mortgage (15 years of business, RRSP, credit card, etc).

    That being said, your mortgage is going to be the biggest interest expense by far, rates should be the #1 concern. PC Financial is simply a division of CIBC anyway...

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