Variable Rates In Flux

The major banks have pared back on variable-rate discountingrates-change-on-variable-rate-mortgages and smaller lenders are wasting little time following their lead.

In the last few days, multiple lenders have raised their variable rates to anywhere from prime minus 0.70% to prime minus 0.50%.

That’s roughly 20 basis points worse than the deeply discounted variable rates available last week.

From the look of things, the new standard for a thrifty variable rate is shaping up to be prime minus 0.70% +/-five basis points (i.e., 2.25% to 2.35% as of today).

That said, a few nonconformist lenders remain with cash to loan and a desire to pick up market share. For that reason, you may see some lenders and brokers continue to offer better than prime minus 0.70% on a case-by-case basis.

In the fixed market, there’s a chance of further behind-the-scenes rate cuts next week (barring a large jump in bond yields). We’ll wait and see how that shakes out to determine how variable rates stack up.

Suffice it to say, the increase in variable rates has made medium terms more attractive from a hypothetical interest cost perspective. (A “Medium term” means a three- or four-year fixed.) Hopefully more lenders (besides Industrial Alliance and RBC) come out with fair pricing in this part of the rate curve.

Rob McLister, CMT

  1. I am kind of new to this place too but since I started coming to this site a couple of weeks ago, the editor posted the super useful article every day or every other day and all the readers commenting after the articles are very knowledgeable and helpful too. I locked down at -.85 on the last day RBC raised the variable rate thanks to the article Rob wrote one day before it happened and all the comments after that. Yup bookmark it.

  2. I agree also. I have been on here for I think a few years. As a consumer, it pays to know as much as possible about what you are buying. And really we do buy mortgages.

  3. I just locked a rate with First National yesterday for Prime minus 90 bps.
    I do agree that a 4 year fixed at 2.99 is a great deal however (only 90 bps above the current variable rate)
    Remember, when the Output Gap closes (last estimate from Carney was for mid-2012, but due to the Us downgrade and Europe concerns, this has likely has been pushed back a few quarters) the BOC aims to have their overnight rate in a neutral range (3% to 4%). Carney did say that the current environment warrants the output gap to close before the BOC rate returns to normal. Therefore you should expect the BOC rate to be below 3% at the end of 2012. Let’s assume the BOC rate increases to 2% (100 bps below the normal range), you have basically given up the variable advantage in one year, and there remains three years of increasing rates.
    Some people say that the BOC can’t raise rates if the Fed doesn’t increase theirs, but in June 2003, the BOC rate was 204 bps higher than the fed. If the BOC rate ends up at 2% near the end of 2012 as mentioned above, the difference between the BOC and the fed would be 175-185 bps, within historical mesasures.
    Overall, I’m starting with the variable expecting to ride it throughout my five year term, but if one year from now bond yields are still at this level (which is certainly possible with GDP and core inflation expectations where they are), I’d look to convert for free to a 4 year fixed.

  4. Glad that I reneved 2 days ago on Prime minus .9%. What is left to hope now is that the BoC reduces it’s rate or at least keeps it the same for as long as the FEDs do.

  5. The problem is, you will never get the best rates when converting from a variable. Instead of 2.99% on a 4 year today, you might get 3.29% or 3.39%, plus whatever the rate increase is by the time you convert.

  6. That depends on the Lender. FirstLine mortgage operates exactley like you said above, but a lender like First National states you will get the best rate they currently offer to any mortgage broker.

  7. That sounds wrong. Does First National give “Wizard rates” to clients who convert? I don’t think so.
    Usually you never get the best promotional rates offered to high volume brokers on conversion.

  8. According to their loan documents,
    “The converted mortgage will bear such interest rate and be subject to such other terms and provisions, including prepayment provisions, if any, as the Mortgagee is then making avilable for that mortgage product to similar mortgagors on similar properties in similar circumstances for the term chosen.”
    I also talked to the lendera nd the mortgage broker to confirm that the rates you see through mortgage brokers would be the one you convert to.
    Call them yourself.

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