The bank is offering you 1% off their posted rate, and it feels like a deal. But a mortgage broker just quoted you a rate 0.50% lower than the bank's "discounted" offer. What's going on? Understanding the difference between posted and discounted rates—and why lenders play this game—can save you thousands.
What Are Posted Rates?
Posted rates (also called "advertised" or "benchmark" rates) are the rates banks publicly display:
- Shown on bank websites
- Posted in branches
- Used in stress test calculations
- Typically 1-2% HIGHER than what borrowers actually pay
Think of posted rates as the "sticker price" at a car dealership—almost no one pays it.
What Are Discounted Rates?
Discounted rates (also called "special" or "negotiated" rates) are what you actually pay:
- Negotiated between you and the lender
- Often 0.75% to 1.50% below posted
- What competitive borrowers receive
- The real market rate
Why Do Posted Rates Exist?
Posted rates serve several purposes for lenders:
Penalty Calculations
When calculating IRD penalties for breaking a fixed mortgage, many big banks use posted rates—making penalties significantly higher.
Example:
- Your discounted rate: 5.5%
- Posted rate when you signed: 7.5%
- Current posted rate for remaining term: 6.5%
Using posted rates: Penalty based on 7.5% - 6.5% = 1.0% differential
Using discounted rates: Penalty based on 5.5% - 4.5% = 1.0% differential
The first method often yields higher penalties because posted rates don't drop as much.
Negotiation Starting Point
Banks can show you the posted rate, then "discount" it—making you feel like you're getting a deal even when you're paying market rate.
Stress Test Benchmark
The Bank of Canada's stress test uses the higher of your rate + 2% OR a benchmark rate partly based on posted rates.
How to Get the Best Discounted Rate
Work with a Mortgage Broker
Brokers:
- Access 50+ lender rates
- Know what's truly competitive
- Negotiate on your behalf
- Cost you nothing (lenders pay fees)
Get Multiple Quotes
If going direct to lenders:
- Get quotes from at least 3-5 lenders
- Include monoline lenders, not just big banks
- Use competing offers to negotiate
Leverage Your Profile
Strong borrowers get better discounts:
- Credit score 720+
- 20%+ down payment
- Stable employment
- Low debt ratios
Be Willing to Walk Away
Banks want your business. If they know you're comparing, they'll work harder to compete.
Consider the Full Package
The lowest rate isn't always best. Also consider:
- Penalty calculation method
- Prepayment privileges
- Portability options
- Flexibility to refinance
Posted Rate Traps to Avoid
Trap 1: The "I Got a Great Discount" Illusion
A bank offers 1% off posted. Sounds great! But if monoline lenders are 1.5% below, you're still overpaying.
Trap 2: IRD Penalty Surprise
That big bank discount can backfire when you break your mortgage and face an IRD calculated using posted rates.
Trap 3: Comparing Apples to Oranges
When comparing lenders, always compare discounted-to-discounted, not one lender's posted to another's discounted.
Lenders That Use Fairer IRD Calculations
Not all lenders use posted rates for penalties:
Fairer penalty calculations:
- Most monoline lenders (MCAP, First National, etc.)
- Many credit unions
- Some alternative lenders
Posted-rate penalty calculations:
- Most big banks (TD, RBC, BMO, Scotia, CIBC)
This can mean thousands of dollars difference if you ever break your mortgage.
Real-World Discount Examples
| <p> | Lender Type | Posted Rate | Typical Discount | You Pay |
|---|---|---|---|---|
| Big Bank | 6.99% | 1.00% | 5.99% | |
| Credit Union | 6.49% | 0.75% | 5.74% | |
| Monoline | N/A | Best available | 5.49% | </p> |
Rates are illustrative examples only.
Monolines often don't use posted rates at all—they just offer their best rate upfront.
FAQ
Q: Why do banks even bother with posted rates?
A: Tradition, penalty calculations, and creating perceived value in discounts.
Q: Can I negotiate posted rates down at my bank?
A: Absolutely. Banks expect negotiation. Bring competing offers.
Q: Do monolines have posted rates?
A: Some do, but many just advertise their best rates. Their penalty calculations are typically more borrower-friendly regardless.
Q: How much can I realistically negotiate off posted?
A: Typically 0.75% to 1.50%, depending on your profile and market conditions.
Q: Is the posted rate ever relevant to me?
A: Mainly for understanding stress test calculations and potential penalty exposure.
Q: Should I avoid banks because of posted rate penalties?
A: Not necessarily—but understand the trade-off. Banks offer convenience and relationship benefits; just know the penalty risk.
What's Next
Don't pay posted rates—ever. Get a free rate comparison from our team to see what competitive lenders are actually offering. We'll show you the difference and help you secure the best deal.
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Contact us today for personalized mortgage advice and competitive rates.
