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18 Apr

Why do some lenders have posted mortgage rates but never issue them with a mortgage?

Mortgage Tips

Posted by: Robert Ganzhorn

If you’ve shopped for a fixed mortgage you’ll notice the big 6 banks (and some other lenders) all have a table of posted mortgage rates. You’ll also notice the posted rates have a “special offer” or a “call for special offer” note. Talk to the bank staff and it’s clear that posted rates are almost always higher then what is actually offered.

So why are those rates even posted if they aren’t used?

Posted rates come into play regarding the term of your mortgage. Breaking your mortgage early will result in a penalty to compensate the lender for lost interest revenue. This is true for all mortgages (unless you happen to have an open mortgage). The key difference is that lenders calculate mortgage penalties with some subtle differences.

Have a look at your mortgage documentation to see if there is any reference to a “discount off posted rate”. If there is then Congratulations! You’re a player in the posted rate game which entitles you to paying significantly more to break your mortgage than if your lender that didn’t use inflated posted rates.

Why is this the case?

Lenders using posted rates add the discount you received from the posted rate back into the penalty calculation. Effectively your penalty is calculated as if your mortgage contract rate was the posted rate at the time of signing.

As of today the posted rate for a 5 year fixed mortgage at one of the big 6 banks is 5.14% while the “special” is 3.65% for a discount off posted of 1.35%. That is a significance difference and will add up quickly should you decide to break that mortgage.

There are a few take-aways from this:

  • Always ask your lender how they calculate breakage penalties and get the details
  • Never just walk into your bank – always consider a few lenders
  • Talk to a mortgage broker – we have access to the best rates and are familiar with lender policies around breakages