This is the first in a series of posts under the title “This is NOT Loyalty”. This series will highlight (pick on?) examples of companies not practising ‘good’ loyalty. If you have any examples please share them so we can have some ‘Loyalty gossip’.
Banking Loyalty Costs You More
This first post is from an article I came across recently in the Toronto Star newspaper about mortgage rate lending. (http://goo.gl/9BgRb). Ask yourself this question – do banks offer loyal customers better mortgage rates? You would think with the reams of data they have at their fingertips on our financial habits – chequeing accounts, credit cards, car loans … they would recognize that relationship by means of better mortgages rates to existing customers. But a Bank of Canada study found this was not the case. Customers who shop around and sign with another lender get better mortgage rates than they would staying with their current financial institution. The study suggests the reason is that the prospective lenders offer low rates in an attempt to win all of your banking business. Your current bank stands not only to lose the mortgage revenue, they stand to lose their entire relationship with you.
Another point of interest in the study was that mortgage brokers do get better rates versus going it alone. The ‘but’ however could be that you will be dealing with a bank that isn’t a ‘well known’ bank or is online only and some people want a lender with a physical building that can you offer you a full suite of financial products and a physical retail space to visit.
And finally the researchers discovered that younger buyers and first time home buyers tend to get better rates. “Lenders are more willing to offer discounts to younger borrowers in return for future expected profits,” the study says.
The advice then is to shop around. Behave like that 30 year old first time home buyer who does their homework and is willing to move to another bank for a better rate – it can save you money. For example you can save $832 for a $176,000 mortgage* if you get a 3.1% rate vs. a 3.2% rate over a five year term. If you multiply that over the typical twenty five year amortization OR if you get more than a 0.01% rate reduction OR if you live in a larger city with more expensive housing and higher mortgage amounts … the savings can quickly multiply.
Canadian average mortgage in 2011, Statscan, April, 27, 2011 (http://www.statcan.gc.ca/pub/75-001-x/2011002/article/11429-eng.htm)