Rate Watch

mortgage-interest-rates If you’re a well qualified mortgage shopper hunting for a fixed rate, you’re probably pretty happy right now. 

5-year bond yields (the basis for 5-year fixed mortgages) hit another record low today:  1.52%.

In keeping with the drop in yields, we’ve been seeing a lot more lenders cut their fixed rates.  The very best 5-year fixed rates are now lower than 80% of variable rates at the moment.  That doesn’t happen too often.  (Note to lenders:  Good luck selling prime + 1% variables)

Interestingly, despite bond yields dropping almost 4/10% in the last four weeks, the big banks are keeping their posted rates abnormally high.  Instead of lowering them, banks are talking up their “discounts" off posted rates.  That’s made posted rates almost useless as an indicator for most people.  (Seriously. Does anyone give any weight to a bank’s posted rates nowadays?)

Regarding variable rates, we’ve seen no rate drops (increased discounts) lately. 

Meanwhile, 30-day bankers’ acceptance (BA) yields–which often lead variable-rates–hit a record low of their own on Tuesday:  1.08%.  That’s down 1/2% in the last four weeks—the same amount that the market expects the Bank of Canada to cut on January 20.  Derivatives traders are betting accordingly.  They’re now pricing in a “100%” chance of a 1/2% rate cut in five days, and a 73% chance of a 3/4% cut.  (Source: CEP)

  1. Hi, I am a “mortgage shopper hunting for a fixed rate” ,, but how happy should i be? whats the best fixed rate on the market right now?
    and i dont understand what you mean by “The very best 5-year fixed rates are now lower than 80% of variable rates at the moment.” when variable rates are around 4.79 fixed for 5 years ( on BMO website) and variable rates are 4.1 (even before the coming rate cut ).

  2. Scratch the 4.79 – just saw a 4.49 fixed for 5 years ! still I find variable is lower so why not go with it and then lock in if rates go up?

  3. I echo MortgageShopper – is the variable rate mortgage still not the best way to go? (One of our local credit unions Steinbach CU is showing 3.5% variable – that seems incredible!)
    Also, can anyone point me in the direction of a primer on negotiating with a bank? (Or just share your wisdom?) I realize the kind hosts of this site would recommend a mortgage broker but I’d like to hear your comments on how to deal with one’s financial institution directly. I am up for renewal with CIBC shortly.

  4. Hmmm, just because your renewal is up with CIBC, doesn’t mean you should stick with them. Try shopping around, find a good rate, and then take it to CIBC saying “match it or I leave…” then when they won’t match it, go find a good broker :-)
    As for the variable thing, you can’t get open variables anymore. So if rates go up (1-2yrs?) you are stuck paying penalty’s to go fixed. That’s why people are looking hard at the 5yr fixed right now, wondering if they will go any lower before they bounce…

  5. I just learned you should ask your institution before taking a closed 5 yr variable mortgage what will happen when you are ready to switch to a fixed rate. Will the fix rate be negotiable or discounted or the future posted rate. TD will likely give you 0.25 off the posted 5 yr rate, but apparently BMO customers in a variable mortgage in the past had to take the posted rate when they were ready to switch to fixed rates. This may not be the case today at BMO. I’m new to this sorry if this is old news, a mortgage broker told me this.

  6. Hi MortgageShopper,
    80% of lenders are currently pricing their variable rates at prime + 1%. The Globe & Mail’s rate page was used as a proxy source of this information (it’s actually 81%).
    As for locking in, that’s often easier said than done. Generally speaking, people cannot time the interest rate market. They are almost always late. That causes them to miss the best fixed rates when locking in. If you plan to lock in then, in most cases, your better off doing it from the get-go.
    Hi Cora,
    You can email any mortgage professional for a quote. Most should know where to get these rates.
    Hi Crystal,
    The variable/fixed decision is a totally client-specific choice. For example, someone with tight finances, little equity, and/or minimal assets might not be suited for a variable. Others simply don’t like the risk/reward of going variable with fixed rates near record lows.
    Cheers,
    Robert

  7. In regards to discounts off of posted mortgage rates:
    I have over $700,000 in property with a mortgage of $180,000 held by a local Credit Union. I have an excellent credit rating and have been with them for over ten years.
    What do you think might be the best discounted rate I could expect from a lender off their posted rates?

  8. As for the variable thing, you can’t get open variables anymore. So if rates go up (1-2yrs?) you are stuck paying penalty’s to go fixed.
    This is not what is meant by an “open” vs “closed”. Open and closed only refers to whether or not you can entirely pay the mortgage off (without penalty) at any time (open), or whether you have to pay it off according to the agreed upon scheduled term (closed).
    Penalties for locking in are an entirely different matter, and I haven’t heard of banks adding that on to their variable products. Instead, they have simply made the variable products unattractive by offering crummy rates (e.g., prime+1.0%).

  9. What do you think might be the best discounted rate I could expect from a lender off their posted rates?
    As noted above, why not call a broker and have them tell you what is available?
    Or, as an alternative, look at those lenders that don’t “haggle” like ING direct. CanEquity also seems to generally post what are industry typical rates.

  10. Bob,
    my post was meant to indicate that if you wanted to go from a closed variable to a fixed rate with a different lender, than you would have to pay a penalty to break the closed mortgage. And no lender will give you their best rate when ‘converting’ to a fixed from a variable (EG: .25 discount from posted!). its always better to be able to take whatever the best rate is with whatever lender is offering it. So that’s why most people will go for the fixed, because if you go with a closed variable then you will have to pay penalty to switch to a fixed.

  11. Huh?
    So far as I have seen, switching from variable closed to fixed is not treated as equivalent to paying off your mortgage and starting anew — and so is not subject to any penalty fees. At least that is the case with the National Bank.
    The only time I could see you facing penalty fees is if you tried to switch to a fixed rate for a term length that is shorter than what you have remaining on your existing closed variable.
    Of course, as you and others have already pointed out, you are unlikely to be able to lock into a fixed rate with the sort of discount that you could have received had you signed up for the fixed rate in the first place.

  12. Ahhhhhhh. Sorry Blair, I now see what you are driving at. You want to switch to a fixed rate with a DIFFERENT lender than the one you have.
    In that case, yes, of course, you are absolutely correct. My apologies.

  13. “TD will likely give you 0.25 off the posted 5 yr rate, but apparently BMO customers in a variable mortgage in the past had to take the posted rate when they were ready to switch to fixed rates. This may not be the case today at BMO. I’m new to this sorry if this is old news, a mortgage broker told me this.”
    Again more disinformation given to clients by brokers with a vested interest (in this case not exactly in the clients best interest). You can switch to fixed from a closed variable at no cost and I can assure you it will not be at posted rates. In fact the rate for existing customers is even lower than the best rates for a brand new mortgage (either bank or broker rates). You just need to talk to the right people.

  14. Not sure why you keep on bringing up the 5-yr bond yield. Right now mortgage rates have very little to do with bond yields. It’s the high inter-bank lending rate that’s keeping the mortgage rates high.

  15. “you are unlikely to be able to lock into a fixed rate with the sort of discount that you could have received had you signed up for the fixed rate in the first place. Posted by: Bob”
    This is what stops me from taking a variable mortgage now at +0.8, since I’m not sure what will be offered to me in the way of fixed rates in a year or two when prime starts to go up. Thank you Bob.
    “You can switch to fixed from a closed variable at no cost and I can assure you it will not be at posted rates. In fact the rate for existing customers is even lower than the best rates for a brand new mortgage (either bank or broker rates). posted by fesnaris”
    I’m feeling very unsure that this will happen since it looks like banks can do whatever they want. I suppose if I got it in writing I could be sure of some kind of discount at the time I convert to a fixed rate in the future. Thank you Fesnaris.

  16. Hi AS,
    Actually, 5-year bond yields are still very much relevant to fixed-rate pricing. It’s not like before, where you could basically add your margin to the yield and advertise that rate. Now there are much bigger risk/liquidity premiums to consider. However, the underlying 5-year bond still affects fixed rates because it is related to other pertinent rates, like the Canada Mortgage Bond (CMB) yield, etc.
    Cheers,
    Rob

  17. I feel very fortunate to have a variabile rate mortgage which is prime – .40.
    It is at 3.1% right now and hopefully next week it will be at 2.6%. I just got in on the prime
    -.40 the last week it was offered.

  18. What are you talking about??? Bond rates are always relevant to mortage rates, but just not as much as you say in your posts (all the time) at the moment due to the credit crunch.

  19. Does anyone know what has been the most taken off prime for a variable rate in recent years? Has it ever been at prime – 2? Prime – 1?

  20. Patrick: in recent memory and for the full 5-year term (i.e. not a teaser rate), Prime -0.90% was the deepest somewhat widely available discounted variable rate.

  21. First-time homebuyer here. Went to my bank (RBC) for pre-approval, then consulted a mortgage broker after we found a house to see if he could do better. Broker got us Prime + 0.6% on 5-year closed variable, vs. Prime + 0.8% originally quoted by RBC. RBC wants our business, and says they can match Prime + 0.6% for the same product. However, RBC mortgage specialist still thinks OPEN variable at Prime + 0.85% is smarter “in this rate environment”. Everything I read says open variable is primarily most suitable if you are planning to sell your house in the near future – not our plan, we’ll be here for the next 5 years minimum in all likelihood. Can anyone explain why open variable would be the way to go right now, at the rate above? Can anyone make a better case for closed variable? or even fixed right now?? (I’m pretty confident we fall into the “well-qualified mortgage shopper” category mentioned at the top of this article, based on our debt service ratios).

  22. Hi PS, I guess we’ll agree to disagree. :)
    Hi Patrick, Joe is absolutely right with respect to 2008. I also remember prime – 1.00% from Dundee and HSBC in 2007.
    Hi OBK, There may be other alternatives depending on your profile. Pop us (or any mortgage planner) an email to discuss, if you haven’t already…
    Cheers,
    Rob

  23. Hey Joe
    I think what the RBC mortgage specialist was getting at is that fixed rates/or prime maybe on there way down. In an open variable you can get out of your term and lock into what ever you want without penalty. That could be a fixed rate or a closed variable or another institution altogether (Leverage?). It gives you flexibility without getting penalized. With regards to fixed or open/closed varialbe for me it comes down to “what your comfortable with.” I wonder what percentage of first time home buyers start with fixed rates?
    My two cents.

  24. From what I’ve seen the great majority of first timers get fixed rates. It is mostly because they wouldn’t be able to afford their payment if rates were to run up.

  25. From what the RBC mortgage specialist says, it seems more likely that prime is going to start to rise over the next few years than to keep falling much further than it currently is, since it’s already so low. If prime starts rising, it’s been suggested that the banks might adjust their pricing back to discounts on prime that we have seen in the past. Does this seem like a probably scenario to anyone out there? I know that rates when from [prime minus x%] to [prime plus x%] pretty quickly over the past 6 months or so; is the reverse likely to happen just as fast if/when prime starts to rise? If it’s a likely scenario, then I see the benefit of the flexibility of open variable. But if it’s not likely going to happen, I don’t know that paying a higher rate to go open “just in case” seems like a good idea. Thanks for any insights.

  26. OBK
    He/she could be right. Prime could move up over the next one or two YEARS!! In the mean time banks may get more competitive with fixed rates. Plus in the short term prime looks as if it will continue the downward spiral. I don’t know how quickly rates will go up. However they may pay close attention so as not to squish an economy that shows signs of recovery. As a first time buyer I started with a fixed term and now have turned to variable products. Looking back I would probably could have reduced my mortgage by another 3 years (from where i am now) if I had started with a variable term. Different economy and different comfort level. Just my two cents. What ever decision you make it will be the right one for you right now.

  27. Hi there, I’m really new at this and was wondering…my mortgage rate is sitting at prime -.90. And to lock in I’m looking at 4.79% (5 years). Friends have said I would be crazy to lock in when I’m only paying 2.6% right now but I’m worried about missing the 4.79% rate and then the rates go back up? I looked up the history of mortgage rates in canada over the past 50 years and there’s not many times when it was under 6% for a 5 year term. I plan on staying at my house for a while…. should I wait or lock in?

  28. Fern you should probably talk to a mortgage planner or bank representative. It is hard for anyone to make a recommendation for you based just on that information.
    Jenny

  29. Fern, I am no expert and hoping you would get more responses. My situation is a touch similar (I don’t have your awesome variable rate). I was offered 4.99 for 5 ys fixed, but at this late stage of the game considering switching TODAY from 6 months at 4.3% convertible to a variable +0.8 closed at TD (I know RBC is offering +0.6, I don’t want to change banks).
    It is my understanding it would be better for me to get a few months at a rate of 4% or less to attack my mortgage for even a brief time, even for a few months of payments, and PAY ATTENTION to the news for a B of C increase, instead of locking in right now 4.99. I would think if I was offered 4.99 now, if the B of C rates come down today and maybe one more time, I have a chance of getting a 5 yr fixed rate of AT LEAST 4.99 or lower at the time I’m ready to lock in (in a few months or next year). Busier people with families may not have the time to follow rates and for them it may be better to lock in. I don’t know what your situation is, as Jenny mentioned. I hope my understanding is correct for switching to variable, looking at the big picture thing, and try to catch a good 5 year rate on the way up.

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