Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Price matching has a very long and complicated history. Retailer generally uses the technique to attract buyers. This controversial practise has many bad and good sides.

On the good side we can say that it is a pro-active campaign and on the bad side we can say that it is a subtle way to collude. It is also a biased process – unsuspecting customers do not get the lowest rate. The buyers who come up with a proof of certain advertisement get the matched price or else they just get the “Good Price”.

As long as there is healthy competition in the market – as a consumer – one will always receive benefit from that. Price matching practice effectively give us a pseudo perception of that vendor being very price competitive. In reality the cost of a basket of goods offered by that vendor will be more expensive (Reference).

Changes in Price Matching:

The game is changing now. After the vendors started to lose revenue they got smarter. Now most of the vendors carry specific items manufactured for them only. If the item and model can’t be exactly matched then the chances of getting a price match is slim.

Are the Banks involved in price (Interest Rate) matching?

It can’t be confirmed if they offer something similar but talking to them would help a consumer to find out if they are willing to do that. Individual Mortgage Sales Rep can say whatever they want but they don’t represent the institution. Often what they do is to ask the client to submit an application and later say that they got an approval for a lower rate than what the client was offered by a competitor.

This is not price matching, this is generally referred to as undercutting and that is good for a borrower.

Why a bank won’t match rate directly:

The banks simply cannot afford a price match.

As you know – after getting you stuck with your mortgage – a bank usually has two options one is to sell the mortgage as a bond or to keep it in-house. Whatever the case is, the yield from a mortgage depends on many factors. Some of those factors are,

  • Penalty Formula
  • Banks Overhead Cost – Effects cost of fund
  • Mortgage Term
  • Associated Fees
  • Prepayments Options.
  • Interest rate.
  • Number of skipped payments.

Interest rate is only a small part of this complete process. Matching a competitor’s rate has only a little impact on it. Therefore, yes, matching a rate would not hurt their bottom line by much but it is a risky business for a lender. As an example if a lender offers more prepayment option then lowering rate would demand a lower pre-payment privilege otherwise the net funding cost would go too high to make a profit.

Similarly, offering a higher fixed term breakage penalty would make sure that the bank can lower its interest rate.

Therefore if a bank has to match a rate then it has to match the whole shebang of other things which makes it harder for them to comply with your request.

How can a borrower benefit from competition?

A consumer can always benefit from healthy competition. If a lender considers that you are a worthy borrower then they will go to great extent to keep or win your business.

While you are shopping for a mortgage then always remember two proverbs –

He who asks is a fool for five minutes, but he who does not ask remains a fool forever.

And

If you know the answer of the question then don’t ask.