Posted Rates Drop to All-time Low

The big banks have moved their 5-year posted fixed rates down to 5.55%.  That’s a record low, breaking the 5.70% mark from July 2005.

5-year-fixed-rate-chart

The banks new “special offer” rate (a more accurate benchmark for fixed rates) is now 4.25%.  So if you have a strong mortgage application and want a 5-year fixed, that is the most you should pay.

BMO economist, Sal Guatieri, says, recent rate cuts have “led to the best housing affordability in four years" and that these latest reductions enhance affordability further.  He’s right of course, and it will be interesting to see if that offsets the economic beating we’re taking and adds buoyancy to Canada’s housing market.

Other factoids of note:

  • The all-time low on record for any term over four years is 5.00%, way back in 1951. (That 5.00% was for a 25-year term. 5-year mortgage data only goes back to 1970.)
  • The average 5-year rate over the last 10 years is 6.95%.
  • The 10-year high was 8.75% in 2000.

Given where we’ve been, it is crystal clear that fixed rates today are in serious value territory.

  1. The interesting part for me is that the 4.25% advertised 5-year fixed “special” (but not “posted”) rate was already reached by a big bank last week. Other big banks are now just matching it and not beating it, even after that big hit on bond yields yesterday. It does make me wonder if one of those banks might drop it just a little bit further.
    No matter for me though, as I couldn’t resist these great rates any longer. Yes I’m aware that some lenders are willing to go even lower, but I chose a deal which benefitted me more for other reasons (including a very low early renewal penalty).
    Lots of good deals out there, esp. if you’ve got good credit.

  2. I just did renew my 3 year-term fixed 5.85% with 22 months left into 5 year fixed with 4.29% last week. The bank offered me no penalty at all. Then today I contacted the bank about their new lower rate on 5 year fixed. He gave me same discount. So my mortgage changed from 5.85% to 4.05% without any penalty. I am happy with this. I have good credit record.

  3. Fixed rate are so low that even I whom is on variable (so paying 1.x %) is tempted as well for the long term aspect
    My friend got 3.9% for 5-year fixed recently before today.
    e.g. Valueland 5-yr fixed is 3.89%, 5-yr variable 3.1%
    [Editor: Jerry. Thanks for the note but please refrain from posting broker links. We need to enforce this policy as the site would be overrun with spam otherwise.]

  4. Did this just happen today? I’m about to go to my bank to refinance at 4.18%/5yr, but we reached that agreement yesterday (Wed Mar 18). Should it be a better rate today?

  5. TK – can I ask you what bank you are with. We are trying to break our term with Scotiabank and they are proposing a very large penalty.

  6. Spencer, that 4.25% 5-year fixed rate quoted in the article was already advertised last week at Scotiabank, but I believe TD had a rate of 4.49% until today. (TD is now also 4.25%.)
    TK, have you looked at all your options with your bank? The penalties for different options may be different. For example, they may ask for a much smaller penalty for an early renewal with them, as opposed to if you decide to go elsewhere. YMMV.
    *Note: I am not a broker, just an interested consumer.

  7. I do work for Scotia, instead of trying to break the term, pay a huge penalty, this would be added to the new mortgage at another lender and reamortized over another 25 years. You are moving backwards. Blend and extend. If you have as STEP make a prepayment with a new mortgage component @ a lower rate.

  8. We purchased our home in Feb. 2008 and have a five year fixed rate of 5.69%. What would be the options open to us to take advantage of the lower rates? Are there any? Or is it just best to sit tight?

  9. This sounds like a great opportunity to renegotiate my mortgage. I have a 5 year fixed at 6.09% with 2 years remaining.
    In my contract there is a penalty described, however when I went to the bank last week and asked them to calculate my penalty, they used a totally different method of calculation that came up with a much larger penalty (double the savings I would get from the lower rate). Are they allowed to calculate the penalty differently than is stated in the mortgage contract?

  10. Hi JS;
    My bank is not Scotia. I have all my accounts with my bank since I bought my house in 2001. When I got 4.09% offered by another bank, I talked with the branch manager. He could not much the rate but offered me 4.29% with no penalty which is way better. The bank dropped the rate after I signed, he even gave me the same discount. I think brunch manager can waive the penalty and do some tricks.

  11. I know for a fact that the major banks can waive the break fees completely, and give you the lower rate, even below what is posted. A couple of friends did the same thing at a major bank. The blend and extend is what the bank wants you to do. If you excellent credit, and other bargaining chips in your favour, and are a good negotiator, then you can work wonders to break your current mortgages from 5-6+ % rates without paying an extra cent. Good luck all!

  12. Ya but you’ll usually get stuck with a higher effective cost of borrowing than you can get by breaking and refinancing elsewhere. Banks did’t build their gold plated office towers by giving away money for free. They are constrained by return on equity minimums on their balance sheet mortgages and from the mortgages they securitize. They have obligations to investors in each case and will not let off a customer unless they can make up that loss in some other way.

  13. Hey Decision Time – your facts are wrong. Waiving the break fees never happens… even when clients break their term and pay the breakage fees, it still doesn’t cover the full cost of the penalty owed to their respective Treasury Departments.

  14. Marc: I would say that you probably know more about this subject in general than I do. However, you do use the word “usually” in your post above. In the first case, my friend broke a 5-year term with 2-years left onit, went from 5.01% to 4.25%, and paid only a $40 fee. In the second case, my friend broke a 5-year term with 3-years left on it, went from 4.91% to 4.15%, and paid not a penny. In my own case, my own non-Big-5 Canadian bank stuck to the rules pretty much as you’ve outlined above, stating obligations to investors, etc. It was still worth $1000 (net of fee) to me over the next 3.5 years to take the lower rate offered, and pay the fee. Plus, I have another 1.5 years extended at the low rate.
    And Nart: Read above – it happened twice in 2 weeks at the same bank. They were originally threatened with the break fee, but upon some gentle persuasion (ie. taking all their business and accounts elsewhere), the fees went away! One of the Big-5 banks. Like Marc says, in some cases they must have a way to make up the loss another way.

  15. In the various finance forums and websites, we always get posts like “I got this killer x.xx% rate!”. I may be preaching the obvious, but it would also be useful to post what the associated strings are with those lower rates. In my own (very limited) research, the rock bottom rates are often (but not always) accompanied by less flexible early repayment options or other extras.
    For example, many people won’t care that a lender allows 20% per year penalty-free repayment along with penalty-free double-up monthly payments etc, as they wouldn’t have the extra money anyway. However, these options are very important to some of us. In my case, I tend to amortize for longer than I need, to reduce my required monthly payments, but then will compensate by increasing my monthly payments to what I can actually pay and/or use double-up payments and/or yearly lump sum payments. This provides me with significantly more financial flexibility. It does take some discipline though, since for many people it can be awfully tempting to spend the extra cash that’s sitting in an account doing nothing but waiting for the next lump sum payment.
    There is a nice short article on the front page of canadianmortgagetrends.com that summarizes some of those points. (See below.) Basically, rock bottom rates are awesome, but be careful not to limit yourself by going with a mortgage that is too restrictive.
    Is the Best Mortgage Rate Important?
    P.S. I hope it’s OK to post this link. I figured it should be fine because the link is not mine or some third party site. The linked article belongs to the canadianmortgagetrends.com website.
    P.P.S. I admit I have also been guilty of posting rates without a list of extras associated with those rates, like my 4.25% rate post in a previous comment above. However, that number is an advertised rate from the big banks, so the extras and restrictions are already clearly outlined on the big banks’ websites.

  16. Hi, I am finding the same thing as Eug. I contacted one “financial” company who shall remain nameless. They are advertising a 3.80% mortgage rate and I thought I hit the jackpot. Then I found out it had only five percent extra payment allowance and it doesn’t apply to a close in May.
    These “tiny details” should be clearly stated on brokers websites. Otherwise they are just wasting a lot of peoples time!

  17. if my possession is in 25 days and I still have not signed with lawyer, and if rates drop, can I take advantage of lower rates? and what is the last point before signing with lawyer or even after signing with lawyer

  18. Brokerbc,
    Strangely enough I got a MUCH better deal from an early renewal and paying a penalty than a blend-and-extend. The blend-and-extend had no penalty, but the rate offered to me wasn’t very good. Dunno why.
    OTOH, the option for the early renewal with penalty had an excellent rate, and the required penalty was very small. There only restriction was that I had to pay the penalty up front, but given that it was a small amount, it wasn’t a problem for me.
    Overall, it was a no-brainer – the blend-and-extend was a terrible deal in comparison. This is in stark contrast to the mortgage for my previous home. The blend-and-extend was the most reasonable option in that case.
    I guess the moral of the story is that one should look at all of the options before making such a decision. You never know what deals you may get unless you ask. And as always, YMMV.

  19. P.S. The penalty would have been much higher had I left my lender for another bank. However, even then, it would have made more sense to do that than agreeing to their blend-and-extend. Their blend-and-extend offer was really that much worse in this particular instance.
    Sometimes I just don’t understand where these numbers come from. Why they gave me a great deal for an early renewal with penalty, but not a similarly good deal for a blend-and-extend, I’ll never know. I would have expected the deals to be in the same ballpark, as both involved keeping my business with them. But nope, that definitely wasn’t the case this time around.

  20. You will almost always get a worse rate for a blend and extend because there is no penalty charged. The bank needs to charge a higher interest rate to keep their profit intact.

  21. Tom, I was talking about the overall deal.
    With a blend and extend, there is no penalty, because as you say, the rate is higher to maintain profits. So there is effectively a hidden penalty.
    In my particular case, that “hidden penalty” was extremely high, which made the deal a terrible one. The rate they offered me was only barely better than my existing rate, which made the offer totally unattractive.
    OTOH, when they offered me an early renewal (just a couple of minutes later), the penalty was very low, and their offered rate was very low as well. ie. The bank’s profits on this offer would be much less over the course of the 5-year mortgage as compared to the blend and extend offer.
    I don’t know why the two offers were completely different. I will say that they offered me the blend and extend first. When I balked, perhaps they decided to cut me a deal on the early renewal penalty to keep my business. (However, it wasn’t presented to me that way.)
    It was a several fold difference in money saved, even after factoring in the (very small) penalty I had to pay.
    P.S. It seems some other people are getting similar deals these days. For an early renewal, TK got his rate cut from 5.85 to 4.05% with no penalty at all. My savings weren’t quite as dramatic as his, but it’s still excellent, especially considering I had more months left in my term than he did.

  22. Banks always pitch the ‘blend & extend’, but I think there are very few scenarios where you come out on top. I’ve found they try to ‘scare’ you into that option by using the penalty.
    My advice, save for the penalty (or do an early renewal) – and get the full mortgage amount on the lower rate. You’ll be better off.

  23. Interesting conversation about the Blend and Extend. I just came back from RBC where I was told they no longer provide that option.

  24. what if you convert your existing closed mortgage into an open mortgage for the same term & then later on pay off or change your open mortgage without any penalties ?
    The open mortgage will have a higher rate than the closed mortgage , but what if you change or pay off this open mortgage say a month after the conversion. ( from your closed to open )
    Since its open there should be no penalty . Also because the open has a higher interest than the closed you wont pay the Interest Rate Differential when you do the conversion , but you might have to pay the 3 month penalty only.

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