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Robert McLister: Big banks typically reserve their lowest mortgage rates for customers who sign up for other products
Published on January 10, 2025 • Last updated 12 hours ago • 4 minutes reading time
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Houses in Toronto, Ontario. Photo by James MacDonald/Bloomberg Files
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If you want the best deal on a major bank mortgage, get ready to sign up for more products, whether you like them or not.
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Banks want your entire business – your checking account, your credit card, your investments, your creditor life insurance, your car loan. The whole enchilada. And if you don't give them more than your mortgage, you won't get the lowest mortgage rates, depending on the bank.
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It is common for lenders to factor a customer's other business into their mortgage rates. In fact, this so-called “relationship pricing” is as old as banking itself. However, some banks (e.g. the Canadian Imperial Bank of Commerce and the Bank of Nova Scotia) are particularly vocal in pushing for multi-product commitments.
At CIBC, for example: “When the (mortgage) economy is not constructive, we look for customers who understand what kind of relationship we want to build with them and work with them,” said Victor Dodig, chief executive of Royal Bank on Tuesday at Canada Capital Market's Canadian Bank CEO Conference.
And by relationship he means the obligation to enable the bank to carry out other non-mortgage transactions.
Over at Scotiabank: “We are not going to use price leverage to gain market share,” CEO Scott Thomson said at the same conference. “I’m not as interested in monoline mortgage customers that we can’t establish a primary relationship with.”
Scotiabank's best interest rates are typically reserved for customers of its Scotia Mortgage+ package program. Because of the price advantage, three out of four new mortgage customers take out additional financial services from the bank.
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Meanwhile, RBC and Toronto-Dominion Bank, locked in a bitter mortgage showdown, are chasing volume like a child chasing an ice cream truck. To achieve this, they are focusing more on pure price competition, which is music to consumers' ears.
“We are primarily driven by volume over margin,” RBC CEO David McKay said at the conference. In fact, he suggested that RBC's thin mortgage margins had contributed to “historic lows” in the profitability of its mortgage book.
The bundled tariff difference
For those who do not want other banking products, mortgage rates can sometimes be 10 to 15 basis points higher. For a standard new mortgage of $500,000 with a 25-year amortization, you'll pay an additional 15 basis points Interest of around $3,500 over a five-year term.
What banks conveniently forget to mention is that there are competitive rates elsewhere without the product bundling circus.
This is a factor for those who prefer full financial freedom and:
a) They don't want to be talked into other products they don't need, and
b) do not want to be offered additional products by their bank every month.
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To get the best mortgage deals, banks today often require customers to open a checking account and withdraw the mortgage payment from it. Banks know that checking accounts are a gateway to your wallet. This strategy dramatically increases the likelihood that customers will purchase other products. This is also mandatory if you want cash refunds on your mortgage, which banks routinely offer to attract new customers.
However, previous research from Rates.ca shows that three-quarters of consumers have been with their bank for more than five years. The majority would consider switching banks if their savings were large enough, but most people say they find switching banks a hassle.
If restructuring your financial life is as much fun as filing your taxes, look for other options. Talk to a mortgage broker, call a few banks that are less focused on multiple products, and browse interest rate comparison websites. It's about getting the lowest overall cost of credit and the most flexibility with the least amount of hassle.
You can't blame the banks
HSBC Canada, which was purchased by RBC last year, took mortgage discounts on several products to new levels with the introduction of everyday low prices in 2016. The company offered industry-leading low interest rates on the assumption that this could make up the difference in other product sales.
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However, unlike today's banks, HSBC was actually transparent in its mortgage offerings. The big six banks are anything but, forcing their customers to fight their way through the air to get their lowest discretionary rates (also known as “exceptional rates”) on mortgages.
Scotiabank is somewhat of an exception, as it advertises lower interest rates than the other Big Six on its online channel eHOME. However, you need to log in to see the deals, and you can usually find lower prices than advertised elsewhere.
In any case, banks are all about maximizing shareholder returns, so their product bundling strategy is as predictable as gravity. Like it or not, this financial pressure on premium mortgage rates will only increase over time.
(Side note: Bundled pricing is not an illegal “tied sale” where the bank won't approve you unless you purchase other products. Qualified single product customers typically receive approval, but at a higher price .)
And hey, if banks offer promotional prices on these other products and you can conveniently get most of your financial services in one place, maybe that's not so bad.
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One final point: Lenders who have nothing else to sell other than mortgages – i.e. no way to subsidize their mortgage rates – face an uphill battle. Some may be experiencing an existential crisis.
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If our government and Treasury really want to boost mortgage competition and ease financial burdens, they must expand low-cost, low-risk government-backed mortgage securitization. The competition from the big banks depends on it. Unless they do, depository institutions will continue to overprice, and consumers will pay for it.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
Mortgage interest rates
The interest rates shown below are updated at the end of each day and come from MortgageLogic.news' Canadian Mortgage Rate Survey. Postmedia and imagination. Online Inc., parent company of MortgageLogic.news, will be compensated by certain mortgage providers if you click on their links in the charts.
This table reflects prevailing interest rates at the time of publication of this story. For the best mortgage rates in Canada today, click here.
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