Mortgage Blog

Pro's and Con's of getting an RBC Mortgage

April 21, 2020 | Posted by: Andrew Wade

RBC is Canada's Biggest Mortgage Lender, but depending on your situation maybe not the best place to get your mortgage.

 RBC (Royal Bank) is the country's largest bank with more than 10 million clients domestically and 16 million globally from 1209 branches across Canada. As of 2019 Q1 they held $271 Billion in Mortgages in Canada 27% of the total mortgage market! Total mortgages in Canada add up as of Feb 2020 to 992 Billion Dollars! RBC also ranks among the largest in the world based on market capitalization (market cap is the market value of a publicly traded company's outstanding shares or share price x amount of shares held). You heard that right- THE BIGGEST IN THE WOLRD!!! That's a lot of muscle for one lender to have. If you want the long and the short RBC is a great bank with a lot of options but also only restrictive to only their products. Negatives are RBC's 10% once-annual lump-sum prepayment option is one of the most restrictive in Canada. You will often find more flexible mortgages elsewhere for a similar or better rate!

They typically make the first move when it comes to lowering their Prime Rate and most of the big 6 banks follow suit sooner or later! The bank has an advantage in that it has the lowest funding costs of any lender in the country, which means they can match any rate on the market and still make more at the end of the day. Posted rates are non-discounted rates that banks use for reference purposes and penalty calculations. They are not the rates most customers actually pay, even though their penalties are based on this vitally important factor. Special offer rates are rates that RBC promotes as its discounted rates.

Discretionary rates are typically the best bank rates available that a lender will match on. They are available to well-qualified borrowers only, and you often need to negotiate to get them.

As with most lenders, RBC's most popular term is its 5-year fixed. Its second most popular term is its variable, which comes with fixed payments that don't increase or decrease when prime rate changes. Most RBC mortgage rates come with a standard 120-day rate hold, 10% lump sum and 10% payment increase prepayment privileges, optional double-up payments and a Skip-A-Payment feature. Extended amortizations are available up to 30 years. RBC may also charge an approximately 0.10%-point higher rate if your amortization is over 25 years. As for payment frequency, you can choose any of the following on RBC mortgages: monthly, semi-monthly, bi-weekly, weekly, accelerated bi-weekly and accelerated weekly payments. Breaking the mortgage entails a penalty (based upon the certain mortgage you have and the terms applicable),  and a discharge/assignment fee (up to $250 in some provinces, as of January 2020).

RBC's most popular product by far with their mortgages is it's RBC Homeline Plan. Homeline is a Readvanceable mortgage that's part home equity line of credit (HELOC) and part mortgage. As you pay off your mortgage principal you can immediately re-borrow those funds from the credit line. To get a Homeline you need strong credit and 20% equity minimum. Just like all Big Banks the maximum limit on the revolving credit line is 65% of the appraised home value. Homeline is a collateral charge mortgage, which lets you borrow more without visiting a lawyer, but also potentially costs you more when changing lenders, as it is a collateral charge mortgage. Common uses for the RBC Homeline include use as an emergency fund, a source of renovation money, business credit and leveraged investing.

Other benefits of a Homeline Plan would be the ability to split your mortgage between a variable and a fixed rate. This can be handy if you're trying to diversify your interest rate exposure. Easy access to credit line funds via ATMs, online banking and branches, and Interest-only payments.

The bank sells RBC-branded mortgages solely through its employees, (mortgage specialists and are not provincially licenesed hold title under the bank), branches and call centre. It does not directly participate in the mortgage broker channel, but its subsidiary, RBC Dominion Securities, funds several mortgage broker lenders. Mortgage specialists are the primary sales channel at the bank. Essentially, they are commissioned representatives. Their direct pay and/or bonus may be based on factors like the amount of your mortgage, the mortgage type and the rate they sell you. There's one very important thing to remember about mortgage specialists. They have the ability to 'buy down' your interest rate. They do that by trading some of their commission for a lower rate. Use this knowledge to your advantage. A few other notes: Mortgage specialists don't generally service existing RBC customers who are up for renewal. If that is you, you'll want to call the above number instead. If you need a mortgage specialist referral at RBC on Vancouver Island feel free to email me directly. 

If a pre-approval is what you crave, RBC is known for its easy online process. It starts with a pre-qualification (start here). The bank says that part takes about 60 seconds. You are then connected with a mortgage specialist online. After providing more information and confirming your qualifications, he or she holds a rate for you (for up to 120 days on a pre-approval, with no obligation). RBC mortgage rates are negotiable. Never accept the first rate you're quoted from the bank. Bank reps are incentivized to close a deal with you. Always compare the rate you're quoted to others on this website and ask the bank to match them. Bank reps have a floor rate. They cannot go below that floor rate without management authorization. Ask them to request a management exception to get you better pricing and use some of their commission to buy down your rate. If the bank refuses to come down enough on its rate, tell the rep that you're going to shop other lenders and to get back to you if they can be more competitive.

hese are some of the benefits of getting a mortgage with RBC:

• Reputation: RBC is one of Canada's most reputable lenders. The bank has rigid controls in place to protect its clients.
• Full-service: One of the key benefits of dealing with a major financial institution like RBC is that you automatically have access to a wide range of additional products such as secured loans, investment products and a multitude of banking accounts.
• Rate Discretion: Sometimes, if you do a lot of business with the bank and/or have a large mortgage, RBC will offer quite competitive rates.
• Branch Access: RBC has over 1,200 branches as of January 2018. That ensures you're never far from a human being if you need to speak to someone face to face about your mortgage.
• Convenience: If you're the type of person who values in-person service, many RBC mortgage specialists can come meet you at your home, office or even a coffee shop. RBC mortgages can also be accessed online with other RBC products, which may be handy for those with an RBC chequing account.

RBC Cons

These are some of the disadvantages of getting a mortgage from RBC:

• Rates Can be Higher: RBC has low funding costs but its stellar brand lets it charge a rate premium. The may even sometimes try to woo you with free banking services! Nice one RBC.
• Potentially Higher Fixed Penalties: If you break your RBC mortgage early you may face a prepayment charge known as an IRD (Interest Rate Differential) Penalty. One of the disadvantages of a big bank mortgage is that IRD penalties are NOTORIOUSLY high. That's because they're based on the bank's high posted rates. (Note: This typically only applies to RBC's fixed mortgage rates.)
• Less Choice: The bank sells only RBC mortgages, which are not necessarily the best products for most Canadians. For example, RBC's 10% once-annual lump-sum prepayment option is one of the most restrictive in Canada. You will often find more flexible mortgages elsewhere for a similar or better rate.
• Limited Advice: Because RBC reps sell only RBC mortgage products (at least with respect to prime mortgages), that means the bank doesn't typically compare other lenders objectively and in detail. In turn, it's not incentivized to tell you when another lender has a better product for your needs. Moreover, unlike most brokers, bank reps aren't required to ensure their mortgages are the most suitable for your needs, vis-à-vis other lenders' products.
• Restrictive HomeProtector Insurance: RBC mortgage insurance is like most big bank creditor life insurance: it is not portable to a new lender. If you need to switch lenders to get a better deal, that might require you to pay higher premiums to stay insured (since creditor life mortgage insurance is based on your age and health condition). This is especially relevant if you get sick after you take out your original policy.

 

 

 

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