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Toronto Real Estate

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Tag Archives: overnight rate

As banks hold off on cuts, brokers see record-low mortgage rates

Tamsin McMahon – The Globe and Mail

Canada’s major lenders are so far holding off cutting mortgage rates in the wake of the Bank of Canada’s quarter-point interest rate cut, but industry officials predict rates will fall to historic new lows just in time for the all-important spring housing market.

Comment: I thought all the “experts” were predicting mortgage rates were going to rise to 10%? Guess they were wrong. Again. Rates have been falling – or steady – for about 7 years now. But they have been predicted to rise in each one of those years.

Toronto-Dominion Bank said it is not planning to lower its prime rate following the central bank’s decision. Both Royal Bank of Canada and Canadian Imperial Bank of Commerce said Thursday they were reviewing their rates in light of a lower overnight rate.

Mortgage brokers, however, say it is only a matter of time – anywhere from a few days to a few weeks – before banks start slashing their rates, with some predicting that as Government of Canada bond yields plummet below 1%, five-year fixed rates could hit a new record-low 2.5%, reigniting a fierce competition for new borrowers.

Falling mortgage rates
“Spring is around the corner and market-share battles will start to heat up,” said Vince Gaetano of “The first bank to make that change, it’s going to be huge from a market-share perspective.

“Someone will blink and that will probably lead everybody down the same path.”

Comment: If it doesn’t happen in February, it will happen in March. Watch for it.

Some small non-bank lenders have already begun cutting their fixed-mortgage offerings, said Drew Donaldson, a mortgage broker and executive vice-president Safebridge Financial Group. Consumers with variable-rate mortgages and preapprovals have been calling Mr. Donaldson’s office in droves looking to find out when their rates might drop.

In the past, when rates were high and lenders could expect wide margins on their mortgage businesses, the major banks would quickly follow on the heels of a Bank of Canada rate movement.

But with bond yields and interest rates plummeting to new lows and lenders facing a host of new regulatory requirements in the aftermath of the global financial crisis, banks have become far more reluctant to slash rates, mortgage planner Robert McLister said.

Banks will likely wait until the end of the fiscal quarter on Jan. 31, after a large share of homeowners have refinanced their mortgages, to slash rates in order to protect their profits, Mr. Gaetano said.

Some industry officials say that while banks will inevitably be forced to drop their fixed mortgage rates if bond yields settle at record lows, they may put off dropping their prime rate, which affects variable-rate mortgages along with a host of non-mortgage lending, such as car loans and personal lines of credit, in order to protect their non-mortgage profits and push borrowers toward longer-term fixed rate mortgage contracts.

Others speculated that federal regulators may be pressuring banks not to lower their rates too drastically by warning that they could introduce tighter lending rules to avoid driving up already high levels of household debt.

“They may very well be considering that and discussing it quietly,” said Will Dunning, chief economist of the Canadian Association of Accredited Mortgage Professionals. He warned the threat of new mortgage rules could spell bad news for the housing market, where continued growth is likely to be one of the main drivers of the economy as oil prices stay low.

“It would be very harmful, not just to the housing market, but to the economy as well to reduce mortgage lending.”

Comment: But there are no new mortgage rules coming. The government has pretty much come right out and said they aren’t going to change anything. So there is NO threat of new mortgage rules, not at all.

But with the average five-year rate among the major banks now sitting around 195 basis points above five-year government bond yields, well above the historical range of between 150 and 160 basis points, most expect the banks to eventually bow to consumer pressure to slash their rates, sending potential buyers running back into the housing market.

“You’ll definitely get more interest in homebuying when you see rates go below 2.5%,” Mr. McLister said.

Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.