The Power of Marketing

This morning, I’m not making a shot at the mega-bank managers, but just want to look at their marketing department and advertisements.

Scotiabank says you’re richer than you think. Now THAT is something I like to hear. But I believe that kind of optimism leads us into debt and most people are actually poorer than they think with not enough retirement savings or even an emergency account. Now if they want to make me richer, how about a lower credit card rate and dropping some of those service charges and fees? And their ad on the ATM machines say: Get ahead with good borrowing choices. Now that’s a no-brainer oxymoron isn’t it? If I’m richer than I think, how come there are so many ads wanting me to borrow? Does that help me get richer?

The Royal has ads that say they have the answers to questions I’ll have next week. Oh really? One says: yes, Gerry in Georgtown, you can afford that variable rate mortgage. Hmm…you have no clue who I am, what I make or what my credit score is, but you’re telling me I’m approved AND that I should get a variable rate? That sounds exactly like what happened in the U.S with their mortgage mess, adjustable mortgages and everyone qualified, doesn’t it?

Posters all over the BMO branches promote shoulda, woulda, coulda with the line: you can, with a homeowner readiline. Should, could go into debt with a line of credit secured by their clients’ home? How about should save, could get out of debt and WOULD if they wouldn’t market debt so heavily!

The CIBC says deal with them “for what matters.” But what matters to you and me versus the bank is probably quite different. That’s their slogan and now they’re promoting getting a free fridge. Yes, if you move your mortgage to them AND get a line of credit – so up your home debt beyond just your mortgage they’ll give you a major appliance. I can assure you if I were to walk you through the math it’s NOT a free appliance, honest!
The TD has a cash-back mortgage. Sign a 7-year loan and they’ll give me 7% cash back. So I can walk out with $14,000 if I sign a 7-year mortgage for $200,000? If that sounds like free money you need to give your head a shake because it’s a much higher rate.

I’ll put the math on the web site under tip of the week, but the bottom line is that your payment on this cash-back mortgage will now be $201 higher and at the end of that seven years, your balance will also be over $5,000 higher. With some simple math, that $14,000 free money works out to paying just under 14% for it. Not exactly free because a line of credit would cost you about a third of that interest.

$200,000 mortgage on a 7-year fixed term:
Cash-back rate is 7.95 so the payment will be $1,520
Balance at the end of 7 years: $175,865
Special rate mortgage would be 6.33% at $1,319
With a balance at the end of $170,805
So it’s $201 more a month times 7 years times 12 months a year or $16,884 more
And the balance is higher by $5,060.

That makes it $5,060 higher balance + $16,884 more in payments for $21,994 to get the $14000 up front, translating to a 13.85% interest charge on that money.

But here’s the winner of the most stupid financing ad: It’s an investment firm that wants you to re-mortgage your home so you can invest with them. And their tag line in the ad: “Don’t let all your equity stagnate.” Stagnate? Sounds like three week old bananas or moldy bread. I thought equity was a good thing and the goal was to get the biggest equity in the world – that’s called a paid off home. Here’s some firm doing whatever they can to have to finance more and more.

THAT qualifies for the stupid award – hands down!

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