Why do mortgage rates vary bank to bank?

You’ve saved up some decent money after working for many years. You asked around to make sure that you’re ready. You’ve decided that the time is right to buy a home. You’ve even found the perfect place. Now it’s time to find a mortgage. The only problem is that you’re struggling to find the ideal interest rate. You heard about the rate that your friend found and you certainly don’t want to be paying more than your friend is.

But as you shop for mortgage rates, you find out that each lender has a different idea of what to charge. Why do mortgage rates vary bank to bank?

The advertised rate is a way to get you in the door

If you’re going to promote something, chances are that you’re going to provide the best-case scenario. This is what happens with mortgage rates in Canada. Never take the advertised rate at face value. Always ask questions. The rate that they put up on the window is likely not what you’re going to get. You should expect to get something higher than advertised. The odds are also against you paying less than the promotional rate. Banks want to get you in the door like any other business.

Mortgage rates depend on the criteria of the loan

Why are you borrowing money? How much money are you putting down? How safe is your job? How good is your credit?

Interest rates depend on many different factors. There’s not one single interest rate that’s going to be offered to every person because every scenario is different.

Some of the important factors are:

• Credit score

• Loan amount (how much house do you really need?)

• Debt-to-income ratio

• The type of property

There’s no such thing as a one-size-fits-all mortgage rate. For example, you may get a higher interest rate if you’re putting less money down. Don’t feel offended if a friend found a lower interest rate. They could’ve received this lower rate for something as simple as having a more secure income.

Every mortgage provider has a different goal

As you’re shopping around for mortgage rates, I hope that you’re checking out all lenders,  

banks, and credit unions. In your hunt you’ll find that every competitor has a different strategy. Some of the smaller banks offer the lowest rate possible just to get you in the door. Credit unions also often offer lower rates. A more established institution can rely heavily on its brand name while offering higher rates since they have built trust with their customer base.

On a similar note, financial institutions often have different strategies for generating revenue. Some banks rely on charging a higher rate for mortgages to make some money. You need to keep this in mind. I was able to find the lowest rate for my mortgage with a credit union since they were looking for new business.

One of your best options is to look online. Thanks to technology, it’s possible to shop for mortgage rates from the comfort of your home. You can get multiple quotes and choose the best deal. Rates vary from bank to bank, and you have the chance for one stop shopping with an online mortgage site.

Interest rates vary when you’re shopping around with different banks. Don’t take anything personally. Keep on looking around until you’re happy with the rate, no matter where you find it.