Finally there is a study to back up what mortgage brokers have been saying for years. A Bank of Canada study found that loyal bank customers don’t necessarily get the best deal when they renew mortgages. People who switch lenders and first-time buyers do.
Many people are under the belief that because they have been a loyal client with the institution they bank with they would automatically get a better rate. This is not the case according to evidence in a Bank of Canada paper called Discounting in Mortgage Markets. They found people who switch banks get a better deal. This is due to the fact that new customers offer banks an opportunity to sell more products.
The study also found that mortgage brokers find the best rates, since mortgage brokers are paid by the lender not the customer so they are not confined to one lenders products.
First-time buyers do well because they are more likely to have shopped around since they have tight budges. They’re a higher risk group for the bank because they have so much debt but over time the bank can sell them more services.
About 1/4 of Canadian mortgages are done via mortgage brokers but 40% of first time home buyers use a mortgage broker. Upon renewal, people still just sign the letter from the bank thinking the bank is taking care of them. It is time to read the small print.