Published: January 24th, 2025 • Last Updated: January 24th, 2025
Author: Ross Taylor on AskRoss.ca

How the ‘best’ mortgage rate from a big bank could end up costing you more

When most Canadians shop for a mortgage, they’re laser-focused on getting the best interest rate—and who could blame them?

But here’s the thing: if you’re dealing with one of Canada’s big banks, that “best rate” often comes with strings attached.

Enter “relationship pricing“—a strategy where banks offer you their lowest mortgage rates only if you bring other parts of your financial life under their roof. Think chequing accounts, credit cards, investments, or even creditor life insurance.

It sounds simple enough, but let’s take a closer look at why banks push this bundling, how it affects your bottom line, and whether it’s actually worth it.

Special thanks to– Robert McLister, author of Mortgage Logic News. Much of the content in this article is inspired by his source material.

Why do big banks push relationship pricing?

Banks aren’t just selling you a mortgage—they’re trying to lock you into a long-term financial relationship. By bundling services, they’re not just hoping to make you a loyal customer; they’re looking to boost their profits. Margins on mortgages are notoriously thin, so banks make up for it by cross-selling other products.

Take CIBC, for instance. Their CEO recently spelled it out: customers who “understand the kind of relationship” they’re after are rewarded with the best mortgage rates.

Translation?

You’ve got to bring more of your financial pie to the table. The same goes for Scotiabank, which has a dedicated Mortgage + bundle program where customers agree to multiple products to unlock better rates.

How can relationship pricing affect your mortgage costs?

At first glance, bundling may seem harmless—or even beneficial if it aligns with your financial goals. But not everyone wants or needs additional products. And if you don’t play ball, the consequences are clear: your mortgage rate might be higher.

Here’s an example: on a $500,000 mortgage amortized over 25 years, even a modest 15 basis point (0.15%) rate difference could cost you roughly $3,500 in extra interest over a five-year term.

That’s no small sum!

What are the hidden costs of the bank’s multi-product commitments?

While bundling might save you a little upfront on your mortgage, it can quietly drain your wallet in other ways.

Here are some examples of the bank’s hidden costs:

1. Monthly account fees
   Opening a chequing account just to secure that rate? Expect to pay monthly fees that add up over time.
   
2. Aggressive upselling
   Once you’re in their ecosystem, banks will start pitching you other products—lines of credit, insurance, or investments—that might not be in your best interest.
   
3. Reduced flexibility
   Bundling ties you to one institution, which makes switching banks down the line feel like untangling Christmas lights. And if you’re locked into a chequing account with automatic withdrawals, breaking free becomes even more cumbersome.
   

What if you want financial freedom?

If the idea of being tethered to one financial institution makes you uneasy, you’re not alone. Many Canadians value the freedom to choose products that best suit their needs without being pressured into unnecessary extras.

Here are a few strategies to maintain your independence:

• Shop around
  Non-bank lenders and credit unions often offer competitive rates without requiring extra products.
  
• Do the math
  Look at the total cost of the deal, not just the mortgage rate. Add up account fees, insurance premiums, and other charges to see if you’re actually coming out ahead.
  
• Work with a mortgage broker
  Brokers can help you find the lowest borrowing costs without the bundling circus.
  

So, are “Monoline Lenders” a better option?

If you’ve never heard of monoline lenders, they’re financial institutions that specialize solely in mortgages. No chequing accounts, no credit cards, no strings. Because they don’t rely on upselling other products, they often compete aggressively on mortgage rates.

That said, monoline lenders have their own challenges. Since they’re heavily dependent on government-backed mortgage funding, their ability to offer low rates can take a hit if those funding sources dry up.

But for borrowers who prioritize simplicity and low rates over bundling, monoline lenders are worth considering.

When seeking a mortgage, it’s crucial to explore all your options and not limit yourself to big banks. While they may seem like the obvious choice, it’s important to remember that monoline lenders can also be a valuable option worth considering.

These specialized lenders focus solely on mortgages and may offer competitive rates and terms that are comparable to, or even better than, those offered by big banks.

Monline lenders shine particularly bright if you are considering a purchase with less than 20% down, or if you plan to switch your mortgage to a new lender at renewal time.

The Bottom Line

The big banks’ best rates can be tempting, but they’re rarely as straightforward as they seem. By the time you’ve signed up for a chequing account, a credit card, or other products you didn’t really need, those savings can quickly evaporate.

If the idea of being tied to one institution for years gives you pause, you’re not alone.

Before you commit to a mortgage with a big bank, ask yourself:

• Are these extra products something I actually need?
• How much will these “extras” cost me over the life of the mortgage?
• Are there alternative lenders that can give me a better overall deal?

At the end of the day, it’s not just about getting the lowest rate—it’s about getting the lowest total cost of borrowing. If you’re feeling overwhelmed by all the fine print, send us a message Best Mortgage Broker Toronto.

Remember, your financial freedom should never come with strings attached. Together, we can cut through the noise and find a solution that works for you—without unnecessary extras weighing you down.

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