When a Montreal branch of the Bank of Nova Scotia recently approached Daniel Goldsmith with an offer to secure his adjustable-rate mortgage with a cash-back incentive, it unknowingly sparked an internet furor.
That’s because Mr. Goldsmith went to Reddit and wondered if the bank was using the financial incentive to nudge him into a fixed rate.
The incident shows how lenders’ longstanding practice of using cashback and other perks is helping Acquiring and retaining customers can sow distrust and confusion at a time when many mortgage holders are faced with complex financial decisions while their borrowing costs are skyrocketing.
Scotiabank said its targeted offerings are not specific to adjustable rate customers who may be interested in opting for a fixed rate. Rather, the bank makes offers based on the individual circumstances and needs of the customer.
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“We do offer targeted customer offers at times and are always looking for ways to add value to our customers,” Scotiabank spokesman Andrew Garas said via email.
“We regularly reach out to our mortgage customers to ensure their products and services continue to meet their needs, and offer advice and options based on their financial goals,” he added.
However, Montreal resident Mr Goldsmith said the cash-back incentive made him wonder if the bank wanted him to sign up for a fixed rate because they expected interest rates to rise in the coming months would fall.
“I’m always wary of things like this,” Mr Goldsmith said of the bank’s communications. According to an email seen by The Globe and Mail, the lender offered to convert its variable-rate mortgage to a 5.47 percent fixed rate for four years with a $1,200 cash-back offer.
Wondering why the bank would offer him cash to switch from an adjustable-rate to a fixed-rate mortgage, Mr. Goldsmith asked for feedback on Reddit, where his post quickly garnered hundreds of comments, with many users expressing similar suspicions about the motives behind the Bank expressed.
Adjustable and variable mortgage rates typically rise or fall as the Bank of Canada’s benchmark interest rate moves. After a seventh straight rate hike on Dec. 7, the central bank signaled that it may be nearing the end of its rate hike cycle. The benchmark interest rate is now 4.25 percent, up from 0.25 percent in early March.
For borrowers like Mr. Goldsmith, whose mortgage rates have risen with every rate hike, the past nine months have been a painful financial squeeze. He said the monthly cost of his mortgage has doubled since he signed up for the adjustable rate mortgage with Scotiabank in August 2021, which has an interest rate of 1.45 percent.
The inflated mortgage payment means Mr Goldsmith and his wife, who have three children, have had to pause saving for their retirement and children’s education savings funds. The family have also had to halt charitable giving and furlough spending is out of the question for now, Mr Goldsmith said.
But if interest rates fell during the remainder of Mr. Goldsmith’s mortgage, his payment would also shrink, giving his family some much-needed financial leeway.
While switching to a fixed rate would protect borrowers like Mr. Goldsmith from further rate hikes, it also prevents them from benefiting from rate declines. That’s ultimately why Mr. Goldsmith chose to stick with the variable rate.
He said he felt no pressure from Scotiabank to commit. But the cash back offer complicated his decision about what to do with his mortgage and raised concerns about the bank’s motivation for offering the incentive.
Banks have long used signing rewards to attract new and existing customers, offering everything from cash incentives to movie tickets to promote products from credit cards to bank accounts, said Ken Whitehurst, executive director of the Consumers Council of Canada. But financial stimulus is “a distraction” for borrowers who are facing difficult decisions about their mortgages at a moment of significant uncertainty about future interest rate developments, he said.
The Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank said they do not provide financial incentives to customers if they commit to fixed mortgage rates.
Bank of Montreal said it communicates regularly with customers about its adjustable rate mortgages and works with each customer individually. However, the bank did not answer a question as to whether it was making specific offers with financial incentives for fixed interest rates.