RBC Drops 2- to 10-Year Fixed Rates

RBC RBC has started off the week on a good note by dropping 2- to 10-year fixed rates by 0.10 percentage points.

Its posted 5-year fixed rate will now be 5.49%, a 4 1/2 month low.

RBC’s “special offer” 5-year rate is down to 4.09%. (RBC’s discretionary rates are in the high 3% range, like most of its competitors.)

If the other Big 6 banks follow by Wednesday, the qualifying rate (for variables and terms under five years) will fall to 5.49% on Monday August 23.

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Update:  For the record, TD was actually first but they didn’t do a press release. They apparently cut their rates this weekend, as can be seen here.

Update2:  The Big 5 banks have all gone to 5.49% on their 5-year posted rates. BMO’s 3.79% “low frills” mortgage is now the lowest advertised 5-year fixed rate among the majors.

  1. its about time… the 5-year GOC benchmark bond yield is at 2.17%… we are approaching the early 2009 levels…
    The GOC 5-yr benchmark yield made a low in Dec-2008 at 1.68%…

  2. 5-yr mortgage rates were much higher in early 2009 … because banks’ funding costs were a lot higher in the wake of the credit crisis.
    Currently 5-year posted rates are 24 basis points above their record low from this past March. Meanwhile, 5-year GoC benchmarks are about 30 basis points below where they were at that time. So we may even see further cuts …

  3. When I called RBC last night, they gave me P-0.75 right away. A broker told me Industrial Alliance offers P-0.9 with some conditions.

  4. Great info guys, thanks JNM and Lynne!
    I wonder if JNM’s better rate was due to a higher FICO score? Or just since he had 20% down?

  5. Banks are so frustrating. You never know what rate you’re going to get from them. It reminds me of haggling for bananas on the beach in Acapulco.

  6. The 5-year swap rate has dropped to 2.15%, down seven basis points today and now the lowest since May 2009.
    This key rate, which is banks’ cost of funds, is now down 126 basis points from its April peak of 3.41%. In the meantime, banks’ 5-year fixed mortgage rates are down only 76 basis points during that same time. So plenty of room to chop.
    Moreover, the swap rate is not even close to the lows it reached during January/09 – still 80 basis points above.

  7. Ollie,
    The 5-year Gov’t of Canada bonds is the Government’s cost of funds.
    By contrast, the 5-year swap rate is the fixed rate that Canadian banks must pay in order to receive a typical floating rate (i.e. BA’s).
    So if a bank (for example) is receiving 3.60% from you on a five-year mortgage, and they’re paying 2.15% on their five-year swap while receiving BA’s, then on a net basis they are earning the BA rate (floating) plus 1.45%. That would be their profit, roughly speaking.
    If you never knew anything about swaps before, the above may seem a bit complex, understandably so.

  8. Muskoka broker,
    Don’t forget the banks aren’t only receiving the floating rate, they are also getting that 1.45% cushion. Their net receive is BA’s + 1.45% (in this example).
    Banks need to receive a floating rate (BA’s in Canada) to offset their risk to rising interest rates. BA’s are Banker’s Acceptances, after all, and banks must pay this rate on all kinds of corporate deposits, it’s pretty standard. So it’s hedging risk for them to receive the floating rate (BA’s) in a swap. This way they are not exposed to changes in the floating rate.

  9. Dan
    I have been watching this thread and find it very educational.
    I was wondering if you could answer this. When a bank buys a swap, who pays the bank the floating rate of BAs + 1.45%? Is it the seller of the swap? If so, wouldn’t the seller of the swap be taking a lot of risk? How does the seller of the swap get the money to pay the buyer each month?
    Last but not leaset, how often do banks sell fixed mortgages for swaps like this?
    Thank you again
    Jim

  10. Jim,
    When a bank buys a swap, remember they generally receive just BA’s in exchange for the fixed swap rate, e.g. currently that would be receive BA’s and pay 2.15% for a five-year swap.
    Where they get the extra 1.45% (for example) is that they’d be receiving (for example) 3.60% on a five-year fixed mortgage. So on a net basis, if you subtract the 2.15% they pay on the swap, they are receiving 1.45% + BA’s.
    So the seller of the swap pays the bank BA’s, and this would usually be another bank acting as a dealer … one of the big six Canadian banks, or JP Morgan, Deutsche Bank, Goldman, RBS, etc … there’s an enormous interbank market for interest-rate swaps, and it results in a very tangled web of millions of swaps between all the players. That’s part of the reason that the OTC derivatives market is so huge ($342 trillion!).
    http://en.wikipedia.org/wiki/Interest_rate_swap#Market_size

  11. Hi Dan,
    I’ve been meaning to thank you for some of your posts on this topic. We always take note of and appreciate contributions that go above and beyond to educate fellow readers.
    All the best,
    Rob

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