If you ever thought a bank was working in your best interest, you may want to have a rethink. The banks have shareholders to answer to and the demand for their share price to continue to rise as well as the expectation of healthy dividends. In this low rate environment banks are finding it more difficult to satisfy shareholders in this regard so they are finding ways to trim the fat and increase fees due to these narrow profit margins.
Sadly, RBC’s announcement this week of their annual fee changes which take effect June 1st, 2015 will hit Canadian consumers in various ways. Seniors, students, kids, and investors are highlighted in the below noted Globe and mail article. For any customer with an RBC mortgage you may be paying for the privilege of having that mortgage with RBC – an additional transaction fee added to your bank account each time you make your regular mortgage payment.
I always stress to my clients the need to increase the payment frequency of your mortgage to reduce the overall interest costs. Frequencies choices are monthly, semi-monthly, bi-weekly, accelerated bi-weekly, and weekly which range from 12 to 52 payments a year. Imagine going over your monthly allowable bank account debits but continuing to pay your mortgage on a weekly basis. Worst case scenario of $5 per transaction would add another $1,300 in fees over the course of a 5 year mortgage. Add that into the total cost of your mortgage and the actual mortgage rate would be higher then you may have thought. For example, let’s say the bank offers you stated mortgage rate of 2.69% on a 5 year fixed mortgage with a 25 year amortization. Your stated mortgage rate would be the 2.69%, now add the $1,300 in fees associated with paying your mortgage from an account at the same bank and your rate climbs to an actual effective mortgage rate of 2.78%! You are paying 2.78% not 2.69%. Pretty steep considering you are meeting your financial obligation and your account and mortgage is with the same bank!
RBC may allude to the fact that these bank fee increases are benign and shouldn’t affect many clients. I disagree, and I expect the other banks to follow suit very shortly. My advice – be aware of what you are paying, check your statements, and if you feel your are paying too much then shop around. Quick solution -you can always open a no fee account that PC Financial or Tangerine provide – make your payments from there and save up to $1,300 over a 5 year term.
At the end of the day, bank loyalty does not pay off. I see it time and again with clients that have all their eggs in the one basket of a particular bank. Younger Canadians – the Millennials have very little loyalty when it comes to banks or any other corporation for that matter and this way of being concerns the banks. With so much choice for mortgages in the Canadian marketplace, consumers now know that they are in the drivers seat – not the banks when it comes to choosing where to place their mortgage. So why give them all of your business and pay extra costs for making your mortgage payment?
Awareness is key. Know what your paying and what is being offered. It’s been said that most people spend more time on the details of their vacation plans than their finances. With 68% of Canadians renewing with their existing mortgage lender without exploring the options with a Mortgage Broker, it is easy to see that there seems to be a point with that statement. A lost opportunity to save thousands of dollars on a mortgage occurs 68% of the time at the point of mortgage renewal. I believe it is time for all of us Canadians to take more control over our finances including who we choose to give our hard earned money to.
Kim Gibbons, Your “Mortgage Superhero ®”
FSCO lic. M08001363