• POSTED VS. DISCOUNTED RATES

  • When I go out to networking events, I love to talk about mortgages, the benefits of one type of mortgage over another and it invariably leads to a discussion about rates.

    I was speaking to somebody about posted rates vs. discounted rates and thought it would make for a great article.

    He admitted that like many people out there when he would get his renewal letter he would just sign it back without going through the trouble to see if he could get a better rate.

    That all changed for him when he lost his job and was forced to start looking at ways to cut back on everything, including his mortgage.

    It is fact that Banks through their marketing efforts, the push from their mortgage specialists and front-line desk people, that they are renewing more mortgages today than they were just after the 2009 crash. The surprising fact is that they are renewing most mortgages at posted rates.

    So what is the difference between posted and discounted rates?

    Posted Mortgage Rates are rates that banks send to their existing clients when they contact them for their mortgage renewal. Any rate that is not discounted to the absolute lowest rate is a posted rate.

    Conversely, Discounted Mortgage Rates are the rates your bank doesn’t want you to know about and are usually only offered to those clients with the top beacon scores and who don’t really need these rates because affording that mortgage is not an issue. It’s a hook that the bank uses to retain that triple A client.

    At renewal time, bank’s contact clients a few short weeks prior to their renewal knowing that over 75% of their clients don’t shop their mortgage rate and will just renew with their existing bank at a higher rate. A bank will rarely offer their client the lowest interest rate the bank has access to at that particular time, ie. the discounted rate.

    Most banks will claim that their rates being quoted are the most competitive in the marketplace. If you are not educated or savvy when it comes to rate shopping, you are more than likely to believe their claims and worse not bother to rate shop. Or, you might have gone through some tough times, are worried whether you will get a renewal, are happy you did get that renewal and are satisfied to sign it back.

    Don’t feel bad – this happens quite frequently because the bank will usually send you your renewal only a few short weeks before renewal, which you are then forced to sign back because you did not have time to rate shop. This should be a reminder to do the work, take the time, speak to a mortgage professional who can assist you. Remember mortgage specialists at the bank are not licensed and therefore don’t need to know about the entire mortgage marketplace. A mortgage agent or broker on the other hand, have had to become licensed and it is our fudiciary duty to ensure you are getting the best rate and product possible.

    So let’s look at an example with the difference in cost:

    Assume a mortgage for $200,000, 25 year amortization and today’s qualifying rate of 4.99% and a 5 year term. Downpayment of 20%.

    Discounted

    Your balance will be approx. $170,921 and your interest over that term will be approx. $27,649.

    Posted

    Your balance will be approx. $176,997 and your interest over that term will be approx. $46,721.

    Wow – that’s a lot of money! I would think it would be worth your time to get a second opinion. Remember, when dealing with a bank, they only have one product to sell you – theirs! But when you deal with a mortgage agent or broker, they have many different mortage products at their disposal. A good mortgage professional will get the mortgage product that fits your lifestyle best and in turn will get you the best rate possible –not what is the current posted or discounted rate but what is possible with your current beacon score and debt ratios.

    The other thing to keep in mind, about posted and discounted is the IRD (I wrote about that here) – as it plays a huge role when and if you have to break your mortgage before the term ends.

    To Your Wealth!
    Amina

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