http://www.cbc.ca/news/business/variable-mortgage-rates-1.4666867
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Hugh MacDonald
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![Jane Beagle]()
Good luck.
![David Amos]()
![Pam Sutton]()
![David Amos]()
![Andrew Farmer]()
![David Amos]()
![Peter Parker]()
![Derek Golota]()
![David Amos]()
![John Brown]()
![David Amos]()
![David Amos]()
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David Amos
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Canadian lenders are competing fiercely for business this spring by cutting their variable rate mortgages. (Daniel Munoz/Reuters)
A number of Canadian lenders have slashed their variable mortgage rates in recent days, even as some of those same lenders are raising their fixed-rate mortgages.
HSBC Canada cut its five-year variable mortgage rate to 2.39 per cent on Wednesday, more than a full percentage point below the bank's own prime rate.
The move comes after Bank of Montreal made a similar cut to 2.45 per cent last week, which was matched by TD Bank earlier this week. Both of those deals expire at the end of this month. Scotiabank soon followed suit, and then later in the day on Thursday, Royal Bank did the same with a cut of its own, by the same one percentage point, until June 4.
The loans have various levels of fine print attached to them, but they all come against the backdrop of rates headed in the opposite direction on the fixed side. For comparison purposes, the average five-year fixed rate mortgage at the big banks is currently 5.34 per cent— although most borrowers can easily negotiate a lower one.
Variable rate loans are generally tied to the Bank of Canada's benchmark rate, which is currently at 1.25 per cent. Fixed-rate loans, however, are more linked to what's happening in the bond market, because that's where the banks get some of the money to fund them.
The interest payment on variable rates loans can rise and fall as the rate tends to change over time. Fixed-rate loans don't do that, but typically come at a higher rate to begin with, because borrowers pay a premium for that stability.
All the big banks have hiked their five-year posted fixed rates in the past month, and more can be expected as the yield on the Government of Canada's five-year bond is currently at its highest level in seven years.
The current spread of more than a full percentage point between variable and fixed rates is the widest it's been in Canada since 2011, said James Laird, president of mortgage broker CanWise Financial and co-founder of rate comparison website RateHub.ca.
"Whenever that happens, you do see a shift where consumers are more likely to see the increased risk of the variable being worth the savings that can be had immediately," he said in an interview.
There's ample evidence to suggest that both fixed and variables will be headed higher eventually. But Laird notes it would take four rate hikes from the Bank of Canada to move the variable rate up to where fixed rates currently are. "And you would have to move past that to be in worse shape for the latter part of the loan," Laird said.
Markets are currently anticipating perhaps two central bank rate hikes this year, and even just one isn't a certainty.
The variable rate cuts are also happening against the backdrop of slowing home sales, so lenders are trying to make up in volume what they may be losing in profitability on individual loans.
"Their margins are very thin at the variable pricing levels we're seeing," Laird said.
"In a sense it's good times for buyers," Laird said, "even if everything else is super difficult."
Banks cutting variable rate mortgages even as fixed ones head higher
Gap between variable and fixed rates at big banks now at highest level since 2011
Comments
Kevin Lacroix
You can bet your last dollar that some actuarial in the banks has decided that getting people hooked into a variable rate mortgage (when rates are climbing) will benefit the bank over the next five years. Beware.
David Amos
@Kevin Lacroix Methinks you took the wind out my sails I was gonna post a comment stating "Buyer Beware" as I read the article but it appears you were way ahead of me So at the very least I should agree and tip my hat to you N'esy Pas?
Hugh MacDonald
Q: Why don't the suits bankers wear have pockets?
A: Whoever heard of a banker putting his hands in his own pockets.
A: Whoever heard of a banker putting his hands in his own pockets.
David Amos
@Hugh MacDonald Methinks many folks have noticed banksters lugging brown paper bags for political dudes and their pals That amount of cash is too much for pockets anyway N'esy Pas?
Jane Beagle
As a two time successful mortage finisher, there is a strong case for variable rate mortgages. I used them throughout the early 2000s and 2010s. Bank of Canada was still lowering it's lending rate and I was able to save a lot in interest payments (at one point paying 1.35% and 1.75%). 25 year terms were paid out in ~15 years.
If I were getting into a first time mortgage I would still consider a variable. If you can get 1.0% or greater below prime, that is still 4 BOC rate raises, and you can attack the principal in the meantime. That said, with trudeau's flawed economic nightmare there is no guarantee that those 4 BOC rate raises won't come quickly. Good luck.
David Amos
@Jane Beagle "That said, with trudeau's flawed economic nightmare there is no guarantee that those 4 BOC rate raises won't come quickly."
Methinks you forgot all the sub prime mortgages that caused the crash of 2008 N'esy Pas?
Methinks you forgot all the sub prime mortgages that caused the crash of 2008 N'esy Pas?
Pam Sutton
Banks: “Helping people to get into debt for hundreds of years”
David Amos
@Bob Foley "who uses there real name lol"
I do
I do
Andrew Farmer
Sounds like putting a big fat worm on a very sharp hook.
David Amos
@Andrew Farmer YUP
Peter Parker
(hand raised) - Mortgage paid-off, even in super-expensive Vancouver.
Live within your means people.
Live within your means people.
Derek Golota
@Peter Parker ...don't worry, current government ( municipal and provincial ) will tax you on what you have paid off .....just ask folks in Kits. House rich, cash poor "millionaires" are not happy, some will be "forced " out of their homes just like folks in Whistler after 2010 Olympics.
David Amos
@Derek Golota "House rich, cash poor "millionaires"
Good point
Good point
John Brown
Hey, they're just trying to help folks out. Oh sure, fixed rates are jacked, but this 'variable rate' they speak of must be a great deal or they wouldn't offer it, customer oriented as they are.
I mean, c'mon, if you can't trust the bank guys, who can you trust.
I mean, c'mon, if you can't trust the bank guys, who can you trust.
Content disabled.
David Amos
@John Brown Methinks thou doth joke too much because most folks don't know about the schooner nicknamed "The Black Joke" N'esy Pas?
https://www.thestar.com/news/insight/2012/09/28/joseph_barss_the_greatest_of_the_nova_scotia_privateers.html
Joseph Barss: The greatest of the Nova Scotia privateers
https://www.thestar.com/news/insight/2012/09/28/joseph_barss_the_greatest_of_the_nova_scotia_privateers.html
Joseph Barss: The greatest of the Nova Scotia privateers
David Amos
@John Brown Methinks that CBC does not appreciate the true history of banksters in Nova Scotia N'esy Pas?
Peter MacDonald
The banks are not pushing variable rate mortgages to "drum up business." They are pushing variable rate mortgages because they know rates are rising, so they will make more money from the uninformed.
@Peter MacDonald I agree
Jim McAlpine
So it would seem the government does everything to hold Canadians accountable for bad policy (stress test for mortgage, etc.) yet do nothing when the bankers continue to promote an unstable financial tool. Anyone who gets into a variable rate today with no knowledge of how much or often that rate will rise is asking for trouble.
David Amos
@Jim McAlpine YUP
Banks cutting variable rate mortgages even as fixed ones head higher
Gap between variable and fixed rates at big banks now at highest level since 2011
A number of Canadian lenders have slashed their variable mortgage rates in recent days, even as some of those same lenders are raising their fixed-rate mortgages.
HSBC Canada cut its five-year variable mortgage rate to 2.39 per cent on Wednesday, more than a full percentage point below the bank's own prime rate.
The move comes after Bank of Montreal made a similar cut to 2.45 per cent last week, which was matched by TD Bank earlier this week. Both of those deals expire at the end of this month. Scotiabank soon followed suit, and then later in the day on Thursday, Royal Bank did the same with a cut of its own, by the same one percentage point, until June 4.
The loans have various levels of fine print attached to them, but they all come against the backdrop of rates headed in the opposite direction on the fixed side. For comparison purposes, the average five-year fixed rate mortgage at the big banks is currently 5.34 per cent— although most borrowers can easily negotiate a lower one.
Variable rate loans are generally tied to the Bank of Canada's benchmark rate, which is currently at 1.25 per cent. Fixed-rate loans, however, are more linked to what's happening in the bond market, because that's where the banks get some of the money to fund them.
The interest payment on variable rates loans can rise and fall as the rate tends to change over time. Fixed-rate loans don't do that, but typically come at a higher rate to begin with, because borrowers pay a premium for that stability.
All the big banks have hiked their five-year posted fixed rates in the past month, and more can be expected as the yield on the Government of Canada's five-year bond is currently at its highest level in seven years.
The current spread of more than a full percentage point between variable and fixed rates is the widest it's been in Canada since 2011, said James Laird, president of mortgage broker CanWise Financial and co-founder of rate comparison website RateHub.ca.
Higher eventually
"Whenever that happens, you do see a shift where consumers are more likely to see the increased risk of the variable being worth the savings that can be had immediately," he said in an interview.
There's ample evidence to suggest that both fixed and variables will be headed higher eventually. But Laird notes it would take four rate hikes from the Bank of Canada to move the variable rate up to where fixed rates currently are. "And you would have to move past that to be in worse shape for the latter part of the loan," Laird said.
Markets are currently anticipating perhaps two central bank rate hikes this year, and even just one isn't a certainty.
The variable rate cuts are also happening against the backdrop of slowing home sales, so lenders are trying to make up in volume what they may be losing in profitability on individual loans.
"Their margins are very thin at the variable pricing levels we're seeing," Laird said.
"In a sense it's good times for buyers," Laird said, "even if everything else is super difficult."