Correctly Comparing Your Mortgage Rate to the Market

A fair comparison is essential for making informed mortgage decisions in Quebec. Too many homeowners compare their rate to inadequate benchmarks, which distorts their analysis and can lead to incorrect conclusions. Here is the complete methodology for objectively evaluating the competitiveness of your current rate.

Fundamental comparison principles

The first principle is to compare against the right rates. The rates posted by major banks on their websites and in branches are window rates, designed as a marketing tool. They are typically marked up by 0.30% to 1.00% compared to actual negotiated rates. An AMF-certified broker has access to negotiated rates from dozens of lenders and can provide you with an exact comparison. The second principle is to compare identical products: same term, same rate type, and same conditions. Comparing a 3-year fixed to a 5-year fixed provides no useful information.

Five-step comparison methodology

1. Identify your exact contractual rate: Check your mortgage contract or annual statement for your exact rate. Also note the rate type (fixed or variable), the remaining term, and the maturity date.
2. Obtain current negotiated rates: Contact an AMF-certified broker for today's negotiated rates. Ask for rates for the same type and term as yours. Online rates are indicative, not the rates actually available.
3. Compare ancillary conditions: The rate is only one element of total cost. Also compare prepayment privileges (10%, 15%, or 20%), portability, conversion conditions (variable to fixed), and the break penalty calculation method (IRD vs three months' interest).
4. Calculate the financial impact of the gap: Multiply the rate gap by your mortgage balance to get gross annual savings. For example, a 0.50% gap on $300,000 generates about $1,500 in savings per year.
5. Evaluate the total cost over the term: Add up the savings over the number of years remaining in the term. Subtract the break penalty and any refinancing costs. If the net result is positive, taking action may be advantageous.

Concrete financial impact of the rate gap

• 0.25% on $300,000 = about $750 per year in savings, or $3,750 over a 5-year term
• 0.50% on $300,000 = about $1,500 per year in savings, or $7,500 over a 5-year term
• 1.00% on $300,000 = about $3,000 per year in savings, or $15,000 over a 5-year term
• 0.50% on $500,000 = about $2,500 per year in savings, or $12,500 over a 5-year term

Understanding the factors that influence rates

Variable rates follow the Bank of Canada's policy rate, announced eight times per year on predetermined dates. Fixed rates follow Government of Canada bond yields, which fluctuate based on inflation expectations and global economic conditions. OSFI indirectly influences rates through its prudential requirements, such as the Guideline B-20 stress test. Understanding these factors helps you anticipate rate movements and choose the best time to act. Use these figures to evaluate whether a term break, renewal negotiation, or simple prepayment adjustment is the best strategy for your situation.