Variable Mortgage Update

Fixed-rate-mortgages Canadian banks are pushing fixed-rate mortgages because most variable-rate mortgages have become unprofitable, so says the Financial Post. Given all the product cuts and variable interest rate hikes lately, that isn’t far from doubtful.

The Post made some other interesting points as well:

  • The public has been warming up to variable-rate mortgages in large numbers.  For example, 50% of TD’s new mortgages had variable rates over the last year.  By comparison, only 21% of mortgages nationwide were variable in 2007.
  • “If you’ve got a mortgage rate negotiated below prime, you have a dinosaur. It doesn’t exist anywhere. You should hold onto (it) until the end of the term.” – Monster Mortgage’s Vince Gaetano
  • At prime +1%, TD says, “We are not making much money on (variables), if anything.”

It’s interesting how public pressure impacted prime in this last rate-cutting cycle. When the banks only cut prime by 1/4% after the BoC’s 1/2% drop, the press was all bad. Everyone from Jack Layton to Stephen Harper scolded the banks.

A week later most banks matched the BoC at 4.25%.

Was the banks’ change of heart due more to the government’s $25 billion mortgage buyback, as some banks suggest, or public outcry?  Banks still weren’t making much money at 4.50%, so their move to 4.25% raises the chances of the latter.

  1. The major banks may have cut prime to 4.25%, but MCAP, for one, still lists their prime as 4.50%. So the full cut may still not be passed on to everyone, depending on who holds your mortgage.

  2. As of today (2008/10/16), my TD HELOC is still 4.35%, not 4.25%
    I am not impressed, since only CIBC/TD are at 4.35% and almost everybody else is at 4.25%
    plus, I don’t own TD stocks, so I don’t need to make them more profitable for now. ARGH!! :(

  3. Is it expected that the fixed rate go down too? I thought they follow variable rates in ups and downs..
    Im starting a Mortgage in April (waiting for the condo to be delivered) any advice? PLZ! :)

  4. Hi Brent: You’re right. A lot of lenders are lagging I’ve noticed.
    Hi Jerry: I’m not sure why TD and CIBC are higher. Maybe they should simply change their discounts/premiums instead and leave prime at 4.25%. That way they’d stay out of the headlines.
    Hi Collin: You can call Investors Group or any mortgage planner to get their latest rates. If you do the latter, the planner will compare IG to the other available options as well.
    One interesting note about IG is that the major rate sites frequently misquote them. For example, the Globe & Mail has shown IG at 3.25% on a variable-rate mortgage. This is a misprint. I’m sure it gets a lot of people to call IG and it’s funny that someone wouldn’t correct these mistakes sooner. Their rates have been wrong for several days now.
    Hi M.N.: Fixed and variable rates are not always correlated and no one really knows where they’re going. If you’re closing in April the best bet is call a mortgage planner for a rate lock in January. Then you’ll be within the 120-day rate hold window.
    Cheers,
    Rob

  5. Hi MT,
    I in London, England right now and I can tell you the banks in Europe are in bad shape! Believe it or not Canada is looking very good right now the key question here is how bad is it going to be. Over 100,000 jobs are expected to be lost in the next month or so just in London! The housing prices are expected to come down by over 30% by the end of 2009! The next shoe to drop, is credit cards meaning it will be difficult to get any!
    In Russia there is wide spread panic as people are taking their money out of the banks, even as the Russian government promises to to $200 billion in relief funds – with $87 billion this week alone!
    (from today’s Financial Times)
    regards,
    Brian

  6. I’m looking into variable mortgages or getting a Line-Of-Credit and the best CIBC is doing is Prime+1%. What’s the use of lowering prime if banks simply make up for it by adding a premium!
    If anyone knows of better rates and where, please let us know! Thanks!

  7. Hi DJ,
    You’re right. It’s irritating, but it’s a fact of today’s market. It’s just way more expensive than usual for lenders to find money to lend.
    There are definitely better rates out there, however. Contact any mortgage planner and they’ll give you a quote specific to your situation.
    Cheers,
    Rob

  8. Hello,
    Can you tell me what volume bonus is and how it affects my mortgage rate? My broker said he couldn’t get me the same rate form a mortgage bank that another broker gets because of volume bonus.

  9. Hi RQ,
    Volume bonus is additional compensation that brokers get paid for sending more business to a certain lender.
    It’s hard for me to speculate on your broker’s thinking in this case. Perhaps your broker doesn’t feel there is enough margin in the deal to warrant the effort.
    Conversely, perhaps the other broker is getting paid more (thanks to his VB) and is willing to do the deal at that rate.
    More commonly, volume comes into play when lenders offer better interest rates to high-volume brokers. This happens a lot. Melanie and I qualify for lower rates ourselves because we do good volume. With certain lenders, that gives us an advantage over brokers who don’t do as much volume.
    Despite this advantage, however, I am not a fan of this system–at all. Some may disagree, but I think there should be a level playing field for all brokers. Compensation should never dictate the lender a broker recommends, unless that compensation can be used to further the client’s best interests (like paying for the client’s appraisal with the additional finders fees).
    In this case your broker was honest and told you why he couldn’t get you that rate. He deserves credit for that.
    Rob

  10. So they are lowering prime.. it is meaningless as far as mortgages go, at least at the TD. The TD has two prime rates. There is TD prime and TD mortgage prime. You can take a guess which one isn’t being lowered.

  11. So what would be best right now, variable rate mortgage (which I got quoted at 3.65 back in august with an option to lock-in at 5.1) or a fixed rate mortgage at 5.05? My lender for some odd reason is telling me the the fixed rate due to the volatility …..he thinks that the jumps will be staggering…am i crazy or is he?

  12. So what would be best right now, variable rate mortgage (which I got quoted at 3.65 back in august with an option to lock-in at 5.1) or a fixed rate mortgage at 5.05? My lender for some odd reason is telling me the the fixed rate due to the volatility …..he thinks that the jumps will be staggering…am i crazy or is he?

  13. no one can tell you what is best for you without knowing more about you
    not many people are expecting “staggering” increases in rates however

  14. Hi Robert,
    National Bank and Canadian Tire both have prime. Although only National will pre-approve clients and lock their rate at prime (for up to 90 days).
    National’s All-in-One mortgage/HELOC is available through mortgage planners as well. It also has a few other unique perks besides the best rate. Any mortgage planner can provide complete details.
    There are also other lenders that do exceptions to prime or below. We don’t post them, however, because they don’t like to promote these exceptions publicly.
    Cheers,
    Rob

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