Rates Dominate the Consumer Mindset

Your mortgage rate isn’t everything, unless you’re in the majority of Canadians.

A full 60% of those polled said getting the lowest rate possible is the “only thing that matters” when it comes to picking the best mortgage, CIBC found in a recent survey.

That mindset is something lenders grapple with daily while trying to differentiate themselves. And with the growth of rate comparison sites, rate sensitivity will only grow over time. The reason: putting rate information from across the market all in one place lowers “research costs” (i.e., consumer time and effort). The lower the research costs and the more that people become aware of such tools, the more they compare rates.

Evidence shows that consumers are embracing the online mortgage channel more than ever. U.S. data (a good leading indicator of Canadian behaviour in this case) reveals that:

• Recent mortgage borrowers were 3.7 times more likely to find their lender through online research or social media than they were just 5 to 10 years ago
• Millennials were 45% more likely to find their lender online, versus baby boomers
• Recent borrowers were 42% less likely to find their lender via Realtor referral, versus borrowers from 2 to 5 years ago
• 60% of homebuyers now expect to apply for and complete their mortgage application online.

Reducing search costs also sparks aggressive competition. A well-known study of term life insurance pricing, for example, found that the ability to compare multiple insurance companies online and list results on one page led prices to fall by 8% to 15%.

Mortgages are the same concept. Here at the Spy, brokers and lenders undercut each other continuously, leading to bigger (generally Canada’s biggest) rate discounts. In essence, online mortgage rate comparison creates a self-reinforcing cycle, whereby more consumers compare more rates online because they hear they can find better deals online.

Of course, rate isn’t everything. But if you’re a lender with rates that aren’t competitive or rates that aren’t prominently marketed online, don’t be surprised as your mortgage market share slowly shrivels over time.