Once upon a time, mortgagors nearing the end of their term would open their bank’s renewal letter, see offers based on horrendously high posted rates and obliviously accept them.

If you’re a mortgage lender, those were the good old days.

Nowadays, many borrowers have more mortgage savvy than a Reddit day-trader who’s watched The Big Short twice, and banks know it.

Lenders would prefer you didn’t shop around, but they know you’re out there surfing the net and scoping the competition. So, most have become more aggressive with rate offers from the get-go.

Case in point

Our nation’s biggest bank, Royal Bank of Canada, recently stepped up its renewal game. It launched a new mobile app experience to conveniently renew a mortgage faster than a Tim Hortons drive-thru. And this time, unlike the banking days of yore, the bank isn’t plotting to give you a rate that feels like a practical joke.

“We are really trying to put the best foot forward at the digital interaction point and give the client a competitive rate,” explains Janet Boyle, RBC’s senior vice president of Home Equity Finance.

She says the bank routinely quotes automated renewal offers below the “Special Offers” it shows on its website rate page — and far below the high “posted rates” that banks use for things like discount and prepayment penalty calculations.

But why are banks more generous with rates today? Here are three reasons, among others:

1. Most Canadians now compare rates online, so it’s harder to fool them with a garbage offer.

2. Fixed rates are 26 to 32 per cent above the 10-year average, depending on the term. Heavily indebted borrowers are therefore more urgently seeking payment savings. That makes them even more likely to shop around.

3. In 2025 and 2026, an unprecedented number of mortgages will mature, with 1.2 million this year alone. Lenders can’t afford to let these customers slip through their fingers.

Your mileage may vary

Not everyone gets the same renewal deal, at RBC or any lender. The bank says every customer receives a “customized rate.”

Before quoting a rate, “We’ve taken into account a lot of things about the client,” Boyle says. And while banks keep their renewal rate algorithms as secretive as Grandma’s cookie recipe, from my experience, they factor in things like your mortgage balance, credit, property value, non-mortgage debts and your other business at the bank. Lenders are pretty adept at predicting how likely you are to leave them, and many adjust their offers accordingly.

But sometimes, the algorithm doesn’t cut the mustard and quotes a subpar rate. If you don’t like your offer, lenders want you to call them first. That increases the probability they’ll keep you as a customer.

For that reason, RBC has a phone number in its app that customers can click to talk live to a specialist at their “advice centre” — i.e., the customer retention team. “They are authorized to give a better deal” when circumstances warrant, Boyle says. “We’ve given this team the same authority the branch would have.”

Think of it as a breakup hotline where they provide couples therapy (read: lower rates) to keep you from ghosting them.

A sea change in competitiveness

Mortgage profit compression is an industry-wide trend reinforced by the fact that banks are trying harder. In fact, RBC is trying so hard that “We were at historic lows in profitability,” chief executive Dave McKay recently said about RBC’s mortgage portfolio. “We’re driven first and foremost by volume versus margin.”

Such talk is sweet music for consumers’ ears, and it’s also apparently not terrible news for shareholders. Since mortgage rates peaked in October 2023, RBC’s stock has soared 51 per cent, outpacing all Big Six banks except CIBC.

Parting tips

But as competitive as banks have become, you still can’t unquestioningly trust a lender’s first offer. Here’s a seven-step plan to secure a sweeter renewal deal:

1. Know what kind of borrower you are. Are you mortgage royalty who can get approved anywhere, or do qualification problems kill your chances of getting a better deal at other lenders.

2. Start early to limit the risk of rates rising before your maturity date. Some lenders hold renewal rates for 90 or even 120 days.

3. Check your credit at least six months beforehand. If your score is below 700, take action to improve it.

4. Assuming you’re well qualified, compare your lender’s renewal offer to what you see online at rate comparison websites — just be sure you’re not comparing apples to pineapples (e.g., if you have an uninsured mortgage, you won’t qualify for the lowest insured rates).

5. Consider your overall cost of borrowing, not just the rate. Look for features that save money later — like lower prepayment penalties, cost-saving portability, skip-a-payment options, an attached credit line, favourable variable-to-fixed conversion rates and penalty-free early refinance options. Many lenders will even throw cash your way to switch, because who doesn’t love a bribe, I mean, incentive?

6. Ring up a mortgage broker or two to validate what you’ve found online and assess broker-only deals. If the agent offers honest, top-notch advice and a lower projected borrowing cost — given the flexibility of their mortgage — consider investing a few hours of your life in changing lenders. Switching usually costs nothing or very little.

7. If your current lender suits you perfectly, use your research as leverage. Then, politely demand a lower rate like you’re negotiating a hostage release. Threaten to leave; do whatever it reasonably takes to snag a better deal. After all, that lender’s not footing your mortgage bill; they’d prefer to pad it.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.

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