Multiple banks (CIBC, RBC, TD, Scotia) are slashing variable discounts again, effective tomorrow.
Second-tier lenders probably won’t be too far behind.
Banks seem dead-set on herding borrowers out of low-margin variable rates. Spreads are simply not profitable enough—at least compared to succulent and juicy fixed-rate margins.
When the dust settles, we’re hearing estimates of variable rates on the street moving to prime – 0.40%, or perhaps prime – 0.50% for aggressive lenders.
New borrowers now face a decision:
A 2.50% rate that moves (i.e., variable)
A 2.49% two-year, 2.99% four-year or 3.29% five-year rate that doesn’t (i.e., fixed).
Consumer psychology being what it is, there will certainly be a giant shift into fixed-rate mortgage originations, given this new pricing.
Tomorrow we’ll analyze whether that’s a good decision.
Note: That “shift” refers to new borrowers only. It does not mean that existing variable-rate holders should consider locking in.
Rob McLister, CMT