Scotia Slashes its 10-year Rate

Scotiabank Scotiabank chopped its 10-year rate today from 7.15% to 5.25%.

It’s hard to remember a time when the 10-year was this low.  Scotia managing director, Charles Lambert, calls it “the perfect solution for customers who are looking for long-term interest rate comfort.”

The new rate “reflects the Canada Mortgage and Housing Corporation’s (CMHC‘s) recent expansion of the Canada Mortgage Bonds (CMB) Program,” Scotia said today.  CMHC added the 10-year Canada Mortgage Bond in July 2008, in part, to help bring down 10-year rates.

It will be interesting to see the uptake of Scotia’s 5.25% 10-year.  ING had a popular 5.55% 10-year fixed last year, but that was at a time when 5-year rates were much higher.  This time, Scotia’s 10-year is competing against 5-year fixed rates in the low 4% range.

Choosing a 10-year rate does provide long-term piece of mind but, like any insurance, there is a price.  For every $100,000 of mortgage you’ll pay $4798 more interest on a 10-year at 5.25% than a 5-year at 4.25%.  (That’s over the first five years, assuming a 25-year amortization.)

  1. Happy to see it. I’m still going to ride the variable rate merry-go-round, with a close eye on the fixed rates. I’m also driving my payments down to maximize cash flow in the mean time. I’m sure we both agree that any time you can lock in below 5% you’re way ahead of the game. (For those of us who remember double-digit rates)

  2. If you drive your payments down to “maximize your cash flow”, you aren’t really taking advantage of the variable rate.
    Unless you are investing that extra cash in higher yielding investments, you are almost certainly better off keeping your payments the same and just poundind the principal.

  3. I’m wondering if this is any indication of very high mortgage rates between 3 to 5 years from today. Would it be wise to look in to a 10 year fixed rate, we are in a very unusual place economy wise speaking.

  4. Cora,
    Good chance we will see higher inflation and rates whenever the economic recovery begins. This could be within the next 3-5 years. A 5 year fixed rate may provide savings now vs. a 10 year rate, but I would fear what renewal rates could be in 5 years time. I work for an agricultural lending corp, and we have seen many clients move into a 10 year fixed product during the past few months.

  5. Alexander,
    I tend to agree, although there is a fair amount of debate about the issue (see the ‘Contribute to RRSP vs Pay Off Mortgage’ debate, for example).
    Regardless, of whether or not you can find other investments with greater returns than paying off your mortgage, “maximizing your cash flow” by reducing your mortgage payments when the variable rate drops doesn’t seem like much of a strategy.
    The whole advantage of a VRM is that you can pay it off more quickly because more of your payment (ideally fixed payment) is directed towards principal than interest.
    If anything, now is a time to INCREASE monthly payments (if you can) because each dollar invested now goes further than it will when rates rise later.

  6. ” If anything, now is a time to INCREASE monthly payments ”
    Best advice !
    If anyone is enjoying these mortgage rates at prime – then do
    everything possible to pay down.
    The whole RRSP vs Mortgage payoff debate is crazy..Dont let the banks convince you it makes more sense to contribute extra funds to a RRSP.
    Being mortgage free while in your prime earning years gives you much more financial freedom plus the interest saved during the time you took to pay mortgage off.
    The banks want you in debt for as long as possible !!

  7. Hmm… please explain why I would pay extra money down when that money can be put into a high interests saving account that will yield more returns? When Prime goes up and is higher than interest rates from saving account, isn’t that the best time to pay extra?

  8. Kyle .. A high interest savings account that will yeild more in
    returns ???
    Hope your not dealing with a new
    Bernie Madoff.
    Example:
    A 300k mortgage at todays fixed rate of 4.5% over 25/years you will
    pay 200k in interest.
    Now if you went on accelerated bi/weekly payments you will trim mortgage to 21 years and pay 168k in interest.
    One step further .. if you now add 100.00 extra to each of your bi-weekly payments to will trim mortgage to 16/years and pay 115k in total interest.
    Thats 85k in after tax income you saved by paying those funds towards mortgage.
    At 200/month over 9/years in a high interst savings account you wont earn 85k and chances are you will withdraw from savings account unless your very disciplined

  9. Yeah, but your calculation is base on 4.5%. There are people that pay less than 2% in interests you know. What you did was an apple to orange comparison. I’m too lazy to do in debt calculation, but can you do one for us? Say Mortgage Rate at 2% and you’re doing 200 dollar extra a month VS 200 dollar into a 2.75% saving account that we’ll withdraw when Mortgage rates goes higher than saving account’s rate and dump it into pay off the mortgage.
    You can get a high interests saving account from a Laurentian Bank of Canada’s subsidiary at 2.75% interests. Madoff or not, you decides.
    This is diffinitely a short term strategy, so yes, discipline is a must. My opinion only, Cash in your hand is better than home equity borrow from your bank.

  10. Hi Kyle,
    You are, of course, right that putting money away into a higher-interest vehicle is the way to go. I think that’s what I said in my original post — I was really only objecting to just using the money to maximize cash flow.
    Having said that, it is also true that every dollar you pay down on your 1.9% mortgage gives you a return more than 1.9% because of the cumulative interest savings down-the-line. How much more is very difficult to quantify because it all depends on how much of your mortgage it represents and at what stage you are in paying it off.
    $1 paid off at the very beginning of the mortgage gives much greater cumulative interest savings than $1 at the end of the mortgage.

  11. “Variable @ 3.30% or fixed @ 4.19% 5 year term starting Mid May? Any thoughts?”
    Drew,
    How about a compromise with a 3-year fixed at 3.89%? It’s a nice middle ground.

  12. I own a house and an apartment. I’ve been lucky and have ridden the variable rate train for 14 years but I think with 10 year rates at 5.25 and the house renewal next month it is time to get off. BOC can’t go any lower so you are getting the lowest rate which is sure to go up. Variable rates were so good for years because it was prime – not prime +.
    My current rate at the apartment is 1.4% and at the house its 2.25%. These sound great because they are but any one joining the variable rate party now is coming to late. They will never see rates lower than 3 and when the economy changes, and it will, they will quickly rise to 5. Unless you have loads of discipline and can put down the extra money to take advantage of 3% then a 10 year is the way to go. If you really feel the need to join the party then split the mortgage down the middle.
    Thats my thoughts for the person buying in mid may. I do think the near future, less than 1-2 years, will see the banks eventually lower to prime as the economic risk reduces. So you will hear of better rates but if you have to buy or renew now then you are stuck with a mortgage of prime + not prime or prime – which is what’s feeding the variable rate ya-sayers into saying it is the best.

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