Cheaper Mortgage Rate or Free Banking?

in Bank, Bank Fees, Mortgage Rates

That was the interesting quandary I was in last week when I went in to talk with my bank about RESPs and such.

Normally when I make an appointment at the bank, I bring a list of things I need to get done and then a few Christmas wishes too. Typically my main wish is to get Free Banking (i.e. no bank fees, or a vacation from fees (yes I already have a PC account, as well)), however this time a co-worker gave me a different idea.

What does this gift mean?

No Not This Type of Bank

As background normally every time I ask for Free Banking and then the bank representative acts as if I am asking for one of their kidneys (and possibly their spleen), and they say it’s impossible to get that, and such, but will eventually relent and give me 6 months or a year of banking for free (i.e. no monthly service charge). It all plays out as a very badly written soap opera, so I decided this time I’d try for something with more impact, which is the interest rate on my Line of Credit.

Currently most secured lines of credit are pegged at Bank Prime (not the bank of Canada prime) plus 1% or something close to that, so I decided to ask, can that rate be lowered (guessing it wasn’t likely, but again, you never know unless you ask, and the worst thing they can say is No).

The meeting was going very well and I had reached the end of the tasks I needed to get done, so I then figured I’d broach the interest rate subject and asked, “Is there any way to get a lower rate on my line of credit?”. The bank rep did not jump out of her chair screeching obscenities, she didn’t even seem remotely perturbed by the request (which made me concerned that it was an easy NO), she simply typed a few things on her computer and said, “Yes, we can see if we can cut your rate to 0.5% over our prime”.

I believe my mouth dropped open and I blinked a couple of times, but regained my composure enough to say, “Yes that would be very good”. Some forms were filled in, but I believe I have been approved for this rate (no fuss, no muss, no complaining about me wanting an internal organ, all very civilized).

This good news got me scratching my head a little, since free banking costs the bank about $14 a month, whereas a rate cut by 0.5% on my Line of Credit is more than that, so what gives? My guess is that the Service Fee is actual bank income, and is very important to the bank, whereas income from Line of Credit interest (while important) is a more variable value, so losing 0.5% is not as important? I may be out in left field on this one, and if anyone has a better idea, I am open to suggestions.

At the end of it all, I am proven correct, if you don’t ask, the answer is always no.


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