TD & CIBC Only Cut Prime 1/4%

Something’s about to hit the fan.  The Bank of Canada dropped rates 1/2% and TD and CIBC just announced they’re cutting their prime rate only 1/4%.

This is the first time in a long time that we can remember big-6 banks not following suit with a Bank of Canada rate move.

Everyone is now waiting to see what the other big banks will do.  One thing is for sure.  This development will definitely get lot of press.

Most people won’t agree with, or understand this move, but TD and CIBC (like most lenders) are not in an easy spot here.  Just because Canada’s overnight lending rate has fallen, lenders’ cost of funds have not fallen proportionately.  Furthermore, lending spreads (revenue margins) were already tightly compressed prior to today’s action.  Some lenders have been forced to charge up to prime + 2% now for variable-rate mortgages.

TD’s Press Release
CIBC’s Press Release

  1. Aren’t lenders obligated to drop with prime? I understand their
    rationale for only dropping by .25 vs. 5, but as you know, borrowers
    who go with a variable product wait for situations like these (regardless of long or
    short term benefits)and could really care less about the banks cost of borrowing and their razor thin profit margins.
    Time to break out the mortgage and read the fine print!

  2. Nice to see the banks not only protecting their profits, but actually earning more. Where they were making 1.75 points above prime, now they’re making 2 points on what they borrow to lend out.
    Anyone else reminded of the collusion we see at the gas pumps?

  3. Hi C&R,
    Like most Canadians, I see you have no sympathy for the banks profit margins. :) Hehehe…
    No, banks are not “required” to keep their prime rates in line with the Bank of Canada. There have been other times in the past where they’ve deviated as well.
    Cheers,
    Rob

  4. I think banks want their variable rate customers to pay for their loss on default mortgages which may be more and more in the future.

  5. Royal only -.25 too, c’mon Scotia stick to .50!
    RBC Royal Bank decreases prime rate
    from CNW Group | Financial News
    TORONTO, Oct. 8 /CNW/ – RBC Royal Bank today decreased its prime lending rate by 25 basis points to 4.50 per cent from 4.75 per cent, effective October 9, 2008.

  6. TORONTO, Oct. 8 /CNW/ – Scotiabank today announced a decrease of one quarter of one per cent in its Canadian dollar prime lending rate. The new rate is 4.50 per cent, effective October 9, 2008.

  7. And bringing up the rear:
    TORONTO, Oct. 8 /CNW/ – In line with current market conditions, the BMO Bank of Montreal Canadian dollar prime rate has been changed from 4.75% to 4.50% effective October 8, 2008.

  8. Does a discount apply in full to the changes in the Prime Rate. For example, I have a VRM = Prime – 0.5 (discount). Is the full discount applied to the new Prime rate e.g., 4.5 – 0.5 = 4.0 ? I’m assuming the discount rate is applied in full force according to the contract I signed ?

  9. Although I’m disappointed that the banks only passed along a portion of the cut, it’s better than nothing, I suppose.
    Will be really interesting to see what happens at the scheduled interest rate announcement on Oct. 21st. If the Bank cuts rates again, as some are speculating they will, will the banks only pass along a portion, the whole shot, or nothing at all? Time will tell.
    In the meantime, I’ll take some satisfaction from the public flogging that they’ll be taking for the next little while.
    Al R

  10. So if the BofC would sometime in the future raise the lending rate by 0.5% the banks will be nice and only raise there prime rates by 0.25%?
    Yah right! Get stuffed Banks!

  11. National Bank decreases its prime rate
    Montreal, 8 October 2008 –
    National Bank of Canada decreases its prime rate from 4.75% to 4.50% effective October 9, 2008.

  12. nxtrnd & others
    No.
    If you read your mortgage contract carefully, you will see that you have a VRM of the BANK’S Prime Lending Rate minus 0.5 (discount).
    This is NOT the same thing as the BANK OF CANADA’S Prime Lending Rate.
    In most circumstances the two will be identical, but occasionally, as we saw today, the Banks decide not to mirror the Bank of Canada’s Prime rate with their own.
    I actually don’t begrudge the banks. As noted in the original post, they are under extreme pressure at the moment. I suspect that once things stabilize, things will return to normal.
    Iceland’s second largest bank went insolvent and had to be nationalized — as only one extreme example.

  13. Ah, sorry. I actually see you were asking about the discount.
    Yes, the full discount will still apply, but the underlying “Prime” is no longer the same as the BoC.

  14. While banks are not obligated to match BoC they almost ALWAYS do, so when this happens it’s a real piss off to those of us with variable mortgages, especially since yesterday reading about banks cutting out discounts for variable mortgages and TD talking about raising their variable mortgage to prime +1%. The whole point for me anyway is to take advantage of the lower interest rate, and the rate cuts that go along with variable mortgages all the while risking the rates being raised. You can bet when rates go up again the big banks will match BoC fully…

  15. I think my Manulife One Account is staying at 4.75 % and I’m not getting any of this rate cute. I find that very upsetting and disappointing. The banks would not even blink if it was a rate hike – they would follow immediately. A variable rate product is a gamble, and right now consumers should have an advantage, but clearly banks are unwilling to be at a disadvantage. Once my mortgage is soon paid off, I will again be bank shopping, I guess – if this is how they treat me.

  16. Dave,
    Manulife is always a bit slower in changing their rates so the fact that the posted rate hasn’t changed doesn’t mean it won’t be cut in the next day or two.
    The fact that some of the big banks aren’t offering discounts of prime makes the MOne product look a lot more attractive than it has in past (assuming they keep their variable rate at prime also).

  17. I phoned my bank (CIBC) to complain and talked my way through 3 different people. The final guy told me that as of midnight last night, not only are they not matching the .5% drop, but also they are no longer having any mortgages discounted below their prime, no matter how much you try to negotiate. He told me that none of the other banks are either. Is this true?
    Holy Collusion Batman!!!

  18. I have noticed that Manulife One has seperated their prime rate from the manulife one base rate – 4.25 and 4.5 respectively now on their ‘today’s rates’ page…. so they only passed on .25 of the drop…

  19. As of October 21 at 8:40am RBC has not reduced my open, variable rate from 3.75 but it may get reduced later, I will be watching

  20. We found out last night that RBC is not discounting their mortgages. We are lucky that they will port over the existing agreement that we have. The funny thing was that when the conversation focused on the “non” discounting off prime my initil reaction was “Holy S$#T, how much more profit do they want?” I am getting tired of being SCREWED…if it is not at the pumps, it is at the bank. Think about this, the banks have organized themselves in such a way that you NEED a bank account…anyhow that is my take…pure BS I say.

  21. Hi Tim: You’re right. As of today Manulife is 1/2% above prime on their One. Much better deals are available out there. (see below)
    Hi Mike: If it helps, National Bank still has variables at prime with free online banking. It’s a little less “screwage” than you’ll get at the big 5… Any mortgage planner can set it up.
    Cheers,
    Rob

  22. Thanks Rob…Our bank is still honouring our rate…so all is well…it is just BS that gets me mad….just like CMHC…make it a monthly rate versus a paid upfront rate…this way I don’t loose money..anyhow..have a great day..
    Mike

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