Let the Games Begin

TD-Canada-Trust Here we go. TD just announced they’re raising rates on variable-rate mortgages and credit lines by one percent, to prime + 1%.  That makes them the first major lender to go above prime on a variable mortgage in a very long time.

The move is effective tomorrow.  Other banks may follow.  If they do, fixed rates are going to start looking pretty darn good.

In a release, TD said, “While TD Canada Trust has endeavored to not pass on the increases in rates to its customers, this change reflects steadily increasing costs of funds in the current economic environment.”

For everyone that’s been quoted a variable rate in the last week or so, unless your mortgage planner or lender has submitted your application, don’t count on that rate being there tomorrow.

BMO looks like they’ve done away with their variable-rate discounts as well.  Until yesterday they were one of the few remaining lenders with “prime minus” variables.

  1. Interesting.
    Do you think the Banks might also finally follow-thru on their threats to not mirror future Bank of Canada Prime Rate reductions to their own “Prime Rate”?
    That would sure cheeze-off existing variable rate holders.

  2. What’s 25 basis points between friends… however recent variable rate changes have changed by ~150 bps! The news releases provided by TD does not explain exactly why variable rate mortgages are going up. Without clarity provided to consumers on this issue, they are going to lose trust.
    And trust is the MOST important thing in today’s market…
    Thanks CMT for providing your insight!

  3. Hi,
    I’m new to all this so this might sound a little silly but i appreciate any help. I have a variable-rate mortgage now at 4.25% with TD. So is this raise only for new customers or will my rate change too?
    Thanks for any help you guys rock!

  4. Greetings,
    I also have a rate question. When you are talking about variable rates are you referring to closed or open? The reason I ask is that I just met with a local credit union where they have an open variable at 4.09% with the option to lock-in to fixed at any time. Are there any other terms and conditions that one needs to be aware of given a basic 200k mortgage?
    Thanks for your help

  5. Boy, I hate to say I told u so, but I TOLD U SO! For all y ou greedy variable raters who scoff at us conservative fixed raters (I booked at 5.15% back in June) HAHA!
    Back on June 12, 2008 “The lock is down” I wrote:
    “Let’s see.
    A risk-free/certainty 5.15% fixed for 5 years vs. a 4-something variable?
    Why stress over rates for the next 5 years? Just lock in!
    How greedy do you have to be not to lock in a historically insignificant 5% fixed????
    Ohhohoo, you’ll save a few pennies IF rates stay between 4 and 5.
    But you’ll get your socks knocked IF rates go back to the 7-10 range and then you’ll lock in at a higher rate out of fear!
    IF vs. Certainty, depends if you are a gambler or not.”
    Al R. then wrote:
    “Jim – it looks as though others have beaten me to the punch, but I couldn’t disagree more. Going with a variable is smart – not greedy. The research bears it out.
    This isn’t to say that there aren’t good reasons for going fixed (e.g. employment might be tenuous, debt service ratio might be maxed out), but in my own case, in month 4 of a 5 yr variable term (p-0.95%, 20 yr am, accel. biweekly)”
    I then wrote back:
    “…Finally, to paraphrase a popular commercial, variable might be less $ but not having to worry about rates for 5 whole years is priceless!”

  6. Uhhhh, Jim. What in the world are you talking about? You realize that most analysts are predicting further rate CUTS, not raises, right?
    If rates were going up, I might understand you coming here to say I told you so — but since rates are on the decline, I rather think it is the folks who signed up for variable rates that should be saying it to you.
    Alanis — your rate will not change. This is just for new customers.

  7. Totally agree with Bob. Since the rate is expected to drop, why hurry locking in now, why not take open variable rate and wait. Timing is important.

  8. What I am reading from this is that they are trying to make people lock into Fixed Mortgage. It is a no brainer to go with 5.5 (or whatever) fixed than Prime +1% variable. May be they suspect that the Fixed Rate will dropped and they are trying to get all the new mortgages on the current fixed rate before we see a big drop? The bank only look after themselves in the end. Anyhow, I would probably Fixed my mortgage only if it ever drops lower than 5%.

  9. Bob, Jason,
    TDs message is that their cost of borrowing is going up and they’re passing it along. Given all the news about the credit crunch it shouldn’t be surprising that this is happening. Central banks may be looking to lower the prime rate but that doesn’t mean that market forces won’t push the cost of borrowing up. There’s not alot of money to be borrowed right now, so why not charge more?

  10. Al,
    I understand. And I agree that fixed rates are much more attractive now than they were in the past. But Jim isn’t talking about people choosing right now — he is talking about people who chose a variable rate in the past.
    What I don’t understand is why Jim is saying “I told you so” to people who chose a variable rate mortgage back in June, or whenever it was that his last post was talking about. At that time, variable rates were still in the P-0.75 range or better and Prime looks to be going down.
    All of those people are doing better than Jim and his fixed rate and have been for the entire duration of their mortgage. If rate cuts come as expected, they will do even better. Now, perhaps Jim has a crystal ball and has been able to determine that rates are suddenly going to jump up to 7 or 8%, but that would be historically weird, and it isn’t what any single economist is predicting. So what’s the source of his glee?

  11. Hey Bob,
    You’re right with the historical part, and the only way Jim would have any “I told you so” in his future is if variable rates shoot way up before people can renew.
    However, as I said before, don’t count on cuts at the central banks translating in cuts on mortgage rates.

  12. I have a variable with prime-0.75% and with interest rates excepted to drop I am sitting pretty right now and if things change I still have the option to lock in but as we don’t see a crazy jump to 7 or 8% as others mentioned I will be saving lots of money over the “lockers”.

  13. I have heard that the prime rate is expected to drop. The banks are banks. They are aware that the rest of the world is planning to drop rates. If they can nudge new home owners into fixed rates before the BoC makes a rate drop on the 21 Oct. They are in the money.

  14. As I am unfamiliar with the product, does anyone know how the move to prime+1% would effect those who have a home equity line of credit. Is their original rate locked in for a certain term or would additional draws on the line be charged the new rate immediately?

  15. I think some of you are a bit off in your perception that banks want to “nudge” people into fixed rate mortgages before rates go down.
    From the bank’s perspective, the variable versus fixed question is not so much a prime vs the yield curve analysis, ie get the purchaser to lock in the pricer option. Its about risk management.
    Historically variable has performed better because banks can offer it cheaper as they dont’ have to do any asset-liability management. Fixed mortgages are a bugger to offer because of all the embedded options in them for the purchaser. Prepayments, payment increases, refinancings, etc. Good luck trying to accurately match these assets with liabilities (GICs) with matching cashflows.
    With variable, they don’t have to worry about ALM so it can be offered a bit cheaper. Borrower bears the interest rate risk.
    I agree with other posters that Jim is a bit confused that even when variable price goes from P-0.5 to P+1, the variable rate can still be cheaper than fixed if the Prime rate drops.

  16. 10 year fixed locked in at a 5.45 for a November 28th close . Im happy , goin to sleep easy for a long time .
    RRSP , Market dollars etc is a whole different story .

  17. p.s. This site in a few short months has become a must read , must study site for myself .
    Well done ! Great comments , questions , debate , advice etc !

  18. I love people trying to make themselves feel good for locking in a rate over 5% !!!! Not the best move, I am now paying 3.35% on my open variable after the rate cut!!!!
    There will be no rate hikes for ages, more than makes up for a 5 yr. rate guarantee

  19. With these rate cuts, what do you you suppose is goign to happen to mortgage rates? Do you think that they will lower them or keep them as is?

  20. Okay, i have had a variable rate for 8 years and have done great under this plan but i am upset that TD CANADATRUST broke with the Bank of Canada Prime Rate Monday and hope TD drops the 50 basis points that Bank of Canada dropped Wednesday morning. I can’t wait for the Libor lending rate to drop so that TD can lower it’s prime. My mortgage comes up for renewal in 2 years and i will not forgot what TD CanadaTrust did. In the meantime, i will be contacting TD and removing all of my other funds and accounts out of their banks just to prove my point. I am also informing other TD Canadatrust people at my work what they have done and i have meet quite a few angry people since no other bank as of yet has broken away from Bank of Canada. Thank you TD CanadaTrust for showing me what a lot of people had told me before. Will be starting the IhateTDCANADATRUST campaign.

  21. Looks like other big banks are following TD. They are all brothers and sisters after all. No such a thing as good rate for customers.

  22. shame shame shame on you for not passing along the full prime rate cut. I am taking my $55,000 out of your bank (in cash) and taking it to my local credit union. I will not forget this.

  23. shame shame shame on you for not passing along the full prime rate cut. I am taking my $55,000 out of your bank (in cash) and taking it to my local credit union. I will not forget this.

Your email address will not be published. Required fields are marked *

Copy link