Investors Group Shocked the Vancouver Mortgage Market by offeirng 1.99%
Investors Group shocked the market by offering 1.99% 3 yr variable (prime -1.01%) on Tuesday May 13th. This is the first rate below 2% since variables touched 1.75% back in 2010, before the prime rate increased from 2.25% to 3% that year. We’re getting more information about the product – just came out 2 days ago and there seems to be conflicting information on the product. Kyle Green of kylegreen.ca, our Vancouver Mortgage Expert discusses:
We do know that it is a restrictive product (which would be expected with a rate this low). From what we can gather:
- Restricted pre-payments. Can only pay it out with a sale
- Can’t port and increase. So if the property is sold, can port to new property but mortgage must remain exactly the same amount
- Only a 3 yr term
- They calculate their own Prime rate (called “Our Prime Rate”). This is relevant as we have seen situations recently where lenders can set the prime rate at what they choose to. During 2008 and 2009, many customers with Manulife found that as the Bank of Canada dropped the overnight lending rate, their Prime rate did not drop as substantially as it should have and many Manulife customers were left paying a higher interest rate than they should have. It would make us feel much more comfortable if they set it at “RBC Prime” to ensure that this isn’t a bait and switch type of situation.
- Mortgage is registered as a “collateral charge” which means upon renewal you may need to pay legal fees to transfer to another lender. This could be relevant as it is less likely IG will have competitive rates upon renewal than a major lender as their strategy seems to be coming out with a competitive offer here and there, and don’t stay competitive for longer than short stints
- Payments based off of 3.75%, not 1.99% rate (so more goes towards principal)
The below are pure speculation by us but require more info:
- Concerns over timeframes. We’ve seen lenders with small underwriting centres come out with rates before and turnarounds can exceed 3 weeks which might be an issue
- Lock-in rates (converting to a fixed rate) is likely to be less competitive with IG than a larger lender, as IG comes out with competitive rates only here and there
- Often rates like these are very restrictive to who qualifies. It could be restricted to:
- Owner occupied (no rentals)
- Insured only (20%+ down payment, client may need to pay CMHC)
- No secured Line of Credit available
- No special programs like self employed stated income, purchase plus improvements, etc
- We imagine the cross sell will be fairly aggressive since the margins on the mortgage will be quite small
- Product will probably only be around for a limited time – it’s probably a PR play similar to BMO’s 2.99% marketing campaigns (which BMO has retracted while other lenders are offering 2.99% in certain circumstances).
We are gathering up more data and more information will follow.
This product does not appear to be offered through brokers, so you would have to deal with someone else at IG to get the product.
All in all, the product may be an amazing rate but we are generally skeptical when other lenders undercut the market so much, as there is usually a catch. Hopefully this pans out for many but IG is leaving the door open to potentially twiddle with their Prime rate which could end up costing many borrowers more in interest than anticipated, without the option to leave their IG mortgage.
We strongly suggest giving Kyle a call before diving into a mortgage product like this. Kyle can be reached at +1 778 373 5441