Some new and innovative mortgage products have recently emerged to help Canadians manage the current high interest rate environment, perhaps most talked about being True North Mortgage’s 1-year 4.99% fixed rate term.
The new product offers a steep discount from the comparable 1-yr rates of 7% to 8% offered by other lenders. It even beats most 5-year fixed terms, but the short-term mortgage is not without its conditions and stipulations.
“It is no secret that we’re offering such a low interest rate compared to the other competitors out there that we’re actually taking a loss,” explained Winston Leung, the director of True North Mortgage’s virtual mortgage broker team.
“To offset that loss, when it comes time to renew—even if the client chooses to renew with us—they can likely anticipate a slightly higher interest rate than the market,” he added.
Leung explains that those who take advantage of the aptly dubbed “Short-Term Rate Relief” promotion are unable to utilize any subsequent promotions when the 1-year term is up.
At that point, they can either renew with a standard mortgage offered by their in-house lender, THINK Financial—along with a premium of 20 to 25 basis points above the advertised rate—or pay a non-renewal fee equivalent to 1.5% of their remaining mortgage.
The discounted 1-year fixed rate product is available for new purchases and switches, and only applies to insured or insurable mortgages.
“We’ll look at the situation, including the loan value, the credit score and amortization, but if you have a client who has an insured mortgage, 4.99% is available,” Leung said.
True North also offers a similar 1-year fixed rate product at a rate of 5.99% with similar conditions and a 1.0% non-renewal fee.
“The lower interest rate is for insured or insurable mortgages,” explains Leung. “The 5.99% slightly higher interest rate product is for people who want to do a refinance or purchase a million-dollar home.”
Leung says the product has gotten a lot of attention in the month since it launched, particularly among borrowers struggling with ballooning mortgage costs and who believe that rates will drop in the next 12 months.
“There’s definitely quite a few applications coming in under this 1-year product,” he says. “Based on our records, we see a few deals scheduled to close in December and even January, and we had a few that closed already in November, so I’d say so far so good.”
“I love the flexibility it offers,” Robert McLister, a rate expert and editor of MortgageLogic.news, told CMT. “It’s a way to save money upfront—in the coming falling-rate environment—but I wish True North renewed these customers at the rates new customers get.”
McLister applauds True North’s ability to come up with a product that will help many through the challenges of today’s high interest rates, and notes that it could even provide them with more buying power.
“Because the rate is lower, the stress test is easier to pass and therefore the loan amount can be larger for a given income,” he explains.
While the Short Term Rate Relief product lets Canadians kick the proverbial can down the road, despite some positive early indicators and optimistic forecasts, there is no guarantee that rates will come down—or even stay the same—over the next 12 months.
In the unlikely event that rates rise further or remain at their current levels, some borrowers may find themselves in an even worse position at the end of their 1-year term than they face today, McLister notes.
Though it’s only been on the market for a month, True North can’t say for sure just how long their 1-year term offers will last, but it’s probably safe to assume it’ll be adjusted or rescinded by the time the Bank of Canada adjusts interest rates.
In the meantime, McLister doesn’t think we’ll see too many copycat offerings emerge. “Others will follow suit, but not that many. This is a very niche product,” he says. “Once rates fall meaningfully, these products won’t be as appealing.”
