Canada's Condominium Magazine
A personal finance rate comparison site says that Canadians don’t use rate comparison sites enough when shopping for important financial products like home mortgages. The company, LowestRates, surveyed about 2,500 Canadians in early July and found that Canadians are not doing their due diligence in the area of personal finance. We say that smart financial decision making is important, but some of us are making “embarrassing” choices when it actually comes to making those decisions.
The home mortgage is usually taken as the single most important financial commitment most people will ever make. Being approved for a mortgage is an affirmation that the applicant is a mature, responsible, creditworthy individual, a welcome addition to that community of hard-working, committed homeowners who keep the economy humming along. Since a typical mortgage nowadays could be for several hundred thousand dollars, depending on where you live, paying the mortgage is literally a matter of keeping a roof over your head. It is not a contract into which one enters heedlessly.
It seems reasonable, therefore, given the importance of it, to assume that we would spend a great deal of time searching for the best possible mortgage available. The LowestRates survey found, however, that two-thirds of Canadians spend more time planning a vacation than they spend searching for a mortgage. We’re prepared to spend 7.5 hours planning the vacation, whose financial impact will be roughly $2000, but only 5.75 hours finding a mortgage, whose financial impact could be $300,000–$500,000 and more. Considering that a rate difference of just 0.5 per cent on a $400,000 mortgage could mean a saving of $30,000 over the life of the mortgage, this is a little surprising.
So why then, when it comes to our biggest financial decisions, like mortgages and insurance, do we settle for the first option presented by our banks? . . . We’re proactive in many aspects of life, but when it comes to personal finance, we default to established financial institutions out of habit.
Why do we do this? LowestRates says the main reason is that Canadians have “blind loyalty” to the big banks. Despite being “proactive” in many aspects of life, when it comes to personal finance, we “default” to the established financial institutions “out of habit.” Two-thirds of survey respondents got their mortgage through a bank, while only 8 per cent used comparison rate sites.
We use comparison rate sites for other purposes, like travel, but not so much for personal finance. Thanks to an ad campaign that can best be described as carpet bombing, Trivago has become the best known comparison rate site for hotel bookings. But, says LowestRates, Canada has one of the lowest adoption rates for comparison site use and for FinTech in general, though there is a strong age factor at work here. Millennials are three times more likely to go online to compare rates for mortgages.
Still, FinTech, those newly emerging, disruptive, up-start companies that are supposed to shake up the financial services industry around the world, has not yet attracted Canadians in large numbers. This is somewhat surprising since Toronto is reportedly one of the top global cities for FinTech, with 350,000 employed by 12,000 firms, according to MaRS.
Some analysts are already saying that FinTech is no longer truly disruptive, given that the big banks, those same banks that were supposed to be FinTech’s targets, are using FinTech’s tools to beat them at their own game. The upstarts are in many cases being acquired by the banks and incorporated in their own service offerings.
In the case of LowestRates, the company says growth has been strong since 2013, pushed mainly by Millennials. If the use of other rate comparison sites in North America can be viewed as a model, adoption rates will increase among older demographics. We already use rate comparison sites for flights, hotels and retail shopping. Why not for mortgages?