The Big 6 banks have lifted their prime rate to 3.00%, from 2.75%, effective tomorrow.
The move follows the 1/4 point hike by the Bank of Canada earlier today.
The typical deep-discounted variable rate is now 2.30% for well-qualified borrowers.
Apart from variable rates, other short-term rates may come under pressure in the near future. 12-month bankers’ acceptance yields, which often track things like 1-year fixed mortgage rates, have broken above levels not seen since January 2009.
If you’re in the market for a variable and can get a 1-year fixed for the same price, it may pay to lean towards the latter. (See: 1-year Fixed Mortgage)
The banks will take the opportunity to get a lot of people to lock into fixed rates . The future depends on foreign numbers as well and right now the U.S. economy hasn’t improved. Canada also is healthier economically but our economy hasn’t reached recovery either.
I have variable mortgage with a very low rate, but locking in at ING’s current 3.79% for 5 years seems to be a pretty good idea right now. Is it?
Go ahead an lock in if you need that type of security. Prime was 6% in Jan 2007. Rates will rise but at what pace?
The poor numbers don’t matter. Mark Carney has indicated that household debt levels are more important than inflation in the near term by his recent decisions, and while acknowledging foreign numbers always, they really aren’t THAT important to our isolated Canada.
The way I see it is this: If the economy improves quickly, rates jump quickly (ie. as outlined in the Dec 2009 FSR).
If the economy continues down the path it is on of the last few months, rates will still rise, but not as fast (ie. 25 bps per 6-8 meetings per year).
However, when you consider the latter scenario (which appears to be playing out, at least right now), rates will still rise 1.5-2% per year. This doesn’t seem like much, but typical VRMs are 5 years, so if you commit to a discounted VRM today, you might get 1-2 years of discounts over today’s 5 year fixed, but after that you lose, regardless of where the economy goes.
Banks profit off of fixed and variable rate mortgages. In fact, they no have a larger spread on VRMs than they did in the past. I think consumers need to get out of this “big bank conspiracy” mentality and just do what’s best for them.
Also, consider that, over time, “the norms” change. Just because for the last 30 years the prime rate has averaged a certain rate, does not mean that prime will always revert to the norm. While the media tells us that all the jobs lost in the recession have been recovered, we still have an unemployment rate around 8%, while the norm prior to the recession was 6%. A lot of people seem to think these jobs are gone forever and 8% will be the new norm.
Hi Graves
My scenario is like yours. One of the banks who I am actually a customer is offering 5 years fixed at 3.59. 3 yrs ago I would have jumped at that rate. Now I feel torn between security and greed.
I was offered 3.49% from a bank for 5 years.
Yesterday I was just offered a 5 year fixed at 3.54% from RBC.
I am also torn as I am in the middle of a 5 year open variable at Prime -.30.
Graves, Denis an Homeseeker. Be vary careful about the rates they are offering. They could have a clause that WILL NOT allow you to break that mortgage for the first 3 year They are also know as no-frills mortgages too. For an extra 10 bps you can be more secure in your decision. Discuss with mortgage planner – not the bank. The mortgage planner is on YOUR side.
Amen to that. Always deal with someone who is not sitting at a desk representing the ONE financial institution who’s only interest is in promoting their own product and paying the rep his/her salary. There’s plenty of lenders in Canada. Use an professional and enjoy some unbiased advice.
Ahem! Excuse me while I pea on the bank bashing tirade but there are various reasons and advantages to dealing with a bank, a C.U., Independent lender or mortgage broker.
To suggest all F.I.’s offer the same product and Mortgage Brokers always offer the best for a customer is inaccurate and ignorant!
As you’ve said we always offer the best service if we can to our customer in terms of mortgage financing and take note we educate as well on various scenarious unlike banks they just want the signature on the dotted line and praying hope no question will come up because their associates knows only how to fill up the apps.
ahhh Jerry ignorance is bliss is’t it. Generalize much? So every bank employee acts in the fashion you described and every broker is beyond reproach. You need to get out more.
So what is the final word…Go lock your mortgage for 5 years at 3.49 or continue with variable.
Obviously there are plenty of good mortgage salespeople at the banks and plenty of good mortgage brokers. Why don’t we just agree that their approach to the business is different?
Bankers sell only their mortgages and cannot recommend outside products.
Mortgage brokers can compare and arrange mortgages from any almost lender which means more choice for the consumer.
I might change my plan and sign up for a 3 year at 2.9. Very close to what I am paying now and will likely save me money over the next 2.5 years. When it comes down to it you can’t lose. Interest rates are so low right now.
I think I’ve decided to just stick with variable. At the end of the day, other than having my rates potentially changing (increasing?) every 3 months, I should come out ahead in the long run, based on most stats I read regarding var rate.
By the time my current rate reaches the current fixed rate, I will have saved a ton in those payments in between. Also my rate would have to increase 5+% before payments get unruly.
T D Bank has offered me 2.99% fixed rate for five year if I lock it right now. Not sure if I should lock it or not?