Vancouver-based Spin Mortgage’s 2.44 per cent 5-year rate with restrictions proves unacceptable to real estate website RateHubDARRYL DYCK/The Globe and Mail
When mortgage brokers Jeff Mark and Steve Pipkey got the call, they thought it was a prank.
The two men, who run Spin Mortgage, an online brokerage based in Vancouver, learned they were being kicked off RateHub, a popular website where consumers can shop for the lowest mortgage rates.
The reason? Their rates were too low.
At just 2.44 per cent for a five-year fixed mortgage, Spin's rate indeed sounds too good to be true.
RateHub's founders say Spin's rate amounted to false advertising, since few borrowers could ever meet the strict conditions to qualify.
Spin argues that other brokers, including RateHub, which runs its own brokerage called CanWise Financial, didn't want the competition.
"We don't want to sound like sour grapes," Mr. Pipkey said. "It's their business and they can run it however they want. But they promote their site as something that creates competition and brings lower rates and transparency to consumers. Well maybe not."
The standoff is the latest twist in the mortgage rate war, and exposes the inner workings of Canada's fiercely competitive mortgage brokerage industry. It's a battle that is increasingly heading online as consumers flock to rate-shopping websites in search of the cheapest possible mortgages and brokers fight to undercut each other, often sacrificing their own commission in hopes of boosting their share of new mortgage business.
In the case of Spin Mortgage, they advertised their rate on several rate-shopping sites, including RateHub, which received a fee every time someone clicked on Spin's rate.
The battle lines were drawn, however, when Spin started advertising the 2.44-per-cent five-year fixed mortgage from Industrial Alliance Insurance and Financial Services Inc., a rate that included a "buydown" by Spin, in which the brokers had opted to forgo some of their commissions to offer a rate even lower than what Industrial Alliance initially proposed.
Spin's rate was low, but it came with a host of restrictions: mortgages had to be closed within 30 days, the rate was only good for new purchases, not refinancings or renewals, was open only to insured mortgages (those with less than 20 per cent down), and couldn't be used to fund rental properties.
"We were advertising a rate that is achievable and available at other mortgage brokerages," Mr. Pipkey said. "It is harder to qualify for, but it's achievable."
Yet fewer than 10 per cent of borrowers would be able to qualify for the rate, said RateHub founder Alyssa Richard. Other brokers had told her they had been able to offer the same rate from Industrial Alliance but chose not to advertise it because of its restrictions.
Spin had been on the site for about three months when Ms. Richard said the company started receiving complaints from other brokers who were advertising on the site, as well as from consumers who had clicked on Spin's mortgage rate only to find out they didn't qualify.
"When customers call the provider interested in a rate and they can't get it, the next people they call is us," she said. "You can imagine they're not very happy."
Spin opted to advertise their rate on the site for only an hour or two at a time. As a small brokerage, they chose to advertise only until they generated enough leads for the day. Yet it was enough for them to capture a sizable share of the site traffic.
"The way these sites work is the majority of leads are funnelled to the lowest-rate provider," Ms. Richard said. "When brokers in Canada are all vying for the same leads, there's an incentive for them to do whatever it takes to get the consumer on the phone. We want to make sure our brokers are advertising real products, not just trying to get the consumer on the phone."
Tamsin McMahon