A landmark decision by Alberta’s largest financial institution is changing the way many Albertans will view the mortgage process.
ATB Financial has announced that it will be changing the way it posts mortgage rates when dealing with customers looking to buy a home.
Traditionally, banks have used two types of rates when dealing with potential home-owners – a posted rate, and a special rate. The posted rate is the more expensive of the two, and the special rate is a discount that many people can receive after negotiation.
Originally, special rates were used by banks to reward customer loyalty, but according to Rob Bennett, an executive vice-president at ATB financial, nowadays almost anyone can get the special rate if they negotiate properly.
According to Bennett, the special rates that were once used to reward customer loyalty are now the “real rates” for most mortgages, but customers rarely know about it. In many cases potential home-buyers can be paying more for a mortgage than they should, simply because they do not negotiate past the posted rate.
It is a practice that is common across the industry, but ATB has decided to stop.
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“For people to not know the real rate is a complexity that we have decided to take out of the decision-making process,” he said. “Having to worry about whether or not you negotiated the right rate is something that we just don’t see as necessary.”
From now on, ATB Financial’s posted rate will be posting only the lowest market rate, not a rate that has been inflated as in the past.
The biggest impact on consumers will happen when dealing with penalties for breaking a mortgage.
When a customer needs out of a mortgage, their bank calculates the amount of time remaining and the mortgage rate, and then dishes out a penalty. That penalty is called an interest rate differential.
Bennett says most banks use posted rates when calculating IRDs, which can cost home-owners thousands of dollars.
“This is a practice that I am familiar with,” he said. “I have always been suspicious of it. Now that I am leading ATB, I have decided that it is not the way that we are going to treat customers.”
ATB’s decision is unprecedented in the banking world, and other mortgage brokers are watching the move closely.
“It is definitely a different route to go,” said Len Lane, a mortgage broker for Brokers for Life. “No one else in the industry has done that, so it will be interesting to see how well it works for them.”
Although Lane agrees that the ATB’s new policy will be a huge benefit to their customers, he is not convinced other banks will follow-suit.
“Whether this will have any effect on the Big-Five banks, I’m not sure yet,” he said. “Penalties has to be a huge profit-center for them, so I’m sure they won’t be in a big hurry to give that money back up yet.”
And even if the other banks don’t lower their posted rates, Lane says low-rate mortgages are not always the best option for everyone.
“Do your homework,” he said. “Sometimes the mortgage with the best rate is not the best for you because of the way that they might do that. They will sometimes reduce the amount of money that you can pay in advance, or your payout penalties will be different.”
With files from Julie Matthews
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