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.