Why am I being offered a lower mortgage interest rate here?

This is in Canada, Ontario.

Prime lending rate is comparatively low and so are the mortgage interests offered by the banks, with most offering a rate of 3.3%.

Prices in the housing market have declined and coupled with the above, the housing market is now being termed as a buyer’s market. So, I told myself that this is a good time to buy a house.

I started hunting for the lowest interest rate in the market, and came up with a financial services provider that quoted a rate of 3.1%(5 year variable closed). When I got to talk to an agent, he told me that if I purchase my house through a particular realtor company who they have partnered with, I can get the mortgage at an even lower rate of 2.75%. That is 0.5% less than the going rate and makes a significant difference in my payout.

Now I am not sure what is happening here and so I come here to fight my ignorance.

  1. I am not sure, but AFAIK, it should make no difference to me, no matter which realtor is handling my purchase as long as it is the house that I want and at the price that I want. Am I right in this assumption? If anything, it will be the realtor representing *the seller *who will have to take a cut in his commission earned, since a part of it would have to be given by him to the buyer’s realtor.

Please advise if my impression is correct and if not, how does the choice of realtor affect me financially.

  1. I cannot understand why the lending agency is agreeable to offer a cut of 0.35% in the interest rate if I hook up with a realtor of their choice. It is probable that the mortgage lender is getting a cut off the earnings of the realtor, but surely the loss incurred on account of lower interest over the amortization period cannot possibly be offset by the earnings of the realtor by way of commission.

Only thing that makes sense to me is that it is a reciprocal agreement where the realtor will also recommend the financial institution to its client, and said institution hope to recoup any shortfall by a higher a number of clients.

I agree with you that the realty company is probably paying a kickback to the lender. That or the lender owns the realty company, but that’s probably not allowed.

I talked to my brother about this - he’s a mortgage broker. What he says is probably going on is “tied lending”. He thinks it’s a bit shady but not illegal. What this is, is that the lender and the realtor have common ownership or some other relationship, so the lender agrees to a lower interest rate on a mortgage for bigger profits at the realty co. That’s because there’s more money from the commission on the sale than the amount lowered on the mortgage. Which makes some sense - a $400,000.00 house would have a total amount of commission of about $16,000.00, $8,000.00 of which would go to the purchasing realtor. Who knows what the agreement is between the actual agent and the realty company, but certainly several thousand dollars would be made by the realty co.