RBC Cancels 4-year Promo Early

RBC-BankRBC’s 2.99% four-year fixed promotion was intended to last until February 29. RBC is instead cancelling it early, effective Wednesday February 8.

The nation’s biggest bank is raising its:

  • 4-year fixed “special offer” by 40 bps to 3.39%
  • 5-year fixed “special offer” by 10 bps to 4.04%
  • 5-year fixed posted rate by 10 bps to 5.24%

Some quick points on these changes:

  • Other major banks are expected to match some or all of RBC’s rate increases, but that’s far from guaranteed.
  • Some lenders and brokers may continue offering 4-year fixed terms at 2.99% (or less), at least for the time being
  • For just 10-20 bps more (i.e., 3.09-3.19%) you can find several brokers offering 5-year fixed mortgages. That’s a reasonable premium for one extra year of rate protection.
  • RBC’s 4.04% five-year “special offer” is almost a full point above 5-year fixed rates on the street. No one other than the most novice mortgage shoppers take this rate seriously.
  • RBC spokesman Matt Gierasimczuk attributed today’s rate increases to this:

“Our long-term funding costs have gone up considerably due to global economic concerns and, while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate.” (Source: Bloomberg)

  • interest-ratesWe can find nothing to suggest RBC’s 4-year fixed funding cost rose 40 basis points since mid-January. It has among the lowest cost of capital in Canada and other lenders have recently launched new 2.99% four-year specials of their own (one of them today).
  • The Globe and Mail quotes sources who say that regulators were unhappy with the “price war” that followed BMO’s 2.99% five-year special. That may be somewhat linked to this announcement, hints the article. The government is clearly worried that low rates may incite borrowing and inflate the debt balloon further.

Rob McLister, CMT

  1. price war is always good for consumers.
    And the regulators should get to work finally and restrict lending to unqualified borrowers.
    keep rates low !

  2. I don’t buy the RBC funding costs due to global economic concerns line. Any recent concerns are already priced into the market.
    Maybe this decision has to do with higher capital costs due to CMHC recent decision to start restricting mortgage insurance securitizations?
    Or maybe there is just less competition pressures between the banks since the recent end of the BMO 2.99% low frills special?
    Or maybe they just want their multi-tasking sales force to focus on RRSP selling?

  3. or maybe they’re just being a typical bank trying to squeeze us for more profit…u see their ceo’s got less cash bonuses..poor babies…it means only a week in palm springs, not two weeks…and dom perignon only once a week….

  4. Well, the fact that they have the largest mortgage portfolio in the country means they’re doing something right. Not saying it’s the most ideal bank *I* would work with, but clearly many consumers are satisfied/could not bothered moving their business elsewhere.

  5. All banks “jack up” rates. In fact, even non-bank lenders jack their rates up. Fluctuating interest rates are part of a functioning economy.
    I think what many lenders did is they jumped the gun on that BMO “no-frills” offer. But whereas BMO’s mortgage was incredibly restrictive, other lenders pushed the same rate but as a standard mortgage with more flexible terms.
    As soon as the BMO promo expired, lenders were quick to pull their similar offer. And with the 4-year at 2.99%, I think that one may stay around for just a little bit longer. There’s another major bank offering 2.79% for a 3-year fixed which is a very good option to the 4-year at 2.99%. But don’t forget that many of their promotions are based on quick closings. If a consumer has a closing coming up in the summer, for example, these offers won’t be able to secure the rate for that long.

  6. nice comments lior……i was raised, wrongly as it turned out, to think that one should only deal with banks…getting a mortgage has been a real learning experience..one that i would never do with a bank….its like they throw out a great rate, then put a gun to your head and tell u that u have like 28 minutes to make a decision…not nice at all….we canadians pay a pantload for our homes and what we need is some stability on rates..something banks know zip about…

  7. I have come to know that RBC customers are almost cult like in their loyalty. I grew up in one such household, as did my wife. We all have RBC accounts, although our mortgage was never through them. I think there must have been a time when they truly were kings of their industry or something because my father speaks of them like there is no alternative – you just walk into RBC and come out with a mortgage, or whatever else you need. No need to shop around.
    …And think of all the products out there that you grew up knowing, and use today simply use because your parents did. Truly lots of indifference out there, you’d think a mortgage would be far more important than a box of Tide or some Quaker State motor oil – but yet to many it is not.

  8. Haters are always gonna hate… RBC is the top dog for a reason, in fact 1 in 3 Canadians is an RBC client. People like the security of a Big Bank in all this financial turmoil and RBC continues to do a lot of things right. When you have the biggest mortgage portfolio in Canada people and other mortgage lenders will always try to bring you down because they are jealous, nuff said.
    People on this site can continue to sing the praises of the broker channel and all these iffy lenders, but when push comes to shove RBC continues to be the top dog! The don’t deal with brokers and never will… believe me they have their reasons!

  9. yea, they tried to lure me to sign on with them..did their best…you wld always have someone to talk to, they told me, like that was really important…i talk to my lender maybe once, twice a year….dont think i want to pay premium rates with rbc for that privilege…as i told them, i was shocked at their poor rates for mortgages..lets face it…i do my savings accounts with them but thats it…

  10. To Rob McLister,
    Do you know if any information in the chart below is privately disclosed amongst larger lending institutions? I am quite puzzled how this information is not being made public and why lending institutions have not filed FOI yet? This is critical information needed to protect the entire industry—even the FSB has recommended for this data to be disclosed. Your thoughts?
    http://i41.tinypic.com/2i6jrk.png

  11. Hi CW, I don’t follow this closely enough to comment intelligently. I do know that OSFI gets a ton of mortgage data from banks which is not disclosed publicly for “competitive reasons.” Believe me, I’ve asked… :)

  12. honestly really?? what are you cheerleader of mortgages for RBC. I worked there for 20 years, its the middle of the pack as far as mortgage lenders go, rate, prepayment, financial advice etc etc…most people don’t understand the differences so they gravitate to the banks. It doesn’t matter what lender it is its all about the knowledge and experience of the person you are working with. anyone can be a order taker. Security? really, well than they can get a mortgage with a number of mono-line lenders and still get RBC money?? Of course they deal with brokers, their own AMS program is the same thing. they have clients believe they are still getting a mortgage with RBC but its being booked with a B lender and clients are not even given the option of knowing they are can go somewhere else and probably get an A mortgage or better service for a B deal. propaganda…

  13. I think to be fair it is not like RBC in general is bad or BMO in general is bad. It is really personal experience and depending on what happened when you deal with the bank and who you dealt with. Plus you have to do your homework especially for big investment such as getting a mortgage. If you just wait for the bank rep or the broker to lead you to wherever they want, then don’t go on a website to complain this bank is so bad and did this to me or the brokers are bad because this guy did such thing to me. You know you could get very good deal from a “bad” bank or those “bad” brokers if you make sure you were on the driver seat.

  14. What makes another mortgage lender better than RBC? Prepayment options? Flexible port options? Let me ask you a question, 5 years ago which mutual fund did you buy for your RSP contribution? The thing is, most average Canadians do not remember what fund they bought, and most Canadians will not know or use all the “flexible” prepayment or whatever “feature” the mortgage offered 5 years ago. Most Canadians want an approval and know they got a good interest rate.

  15. well said, as i mentioned earlier its all about the experience, value, advise and who you are dealing with, the lender is secondary. we need to educate the public that they have options and bigger isn’t always better just another option.

  16. When it comes to mortgage shopping RBC is at the bottom of my list. But I like their mortgage calculator.
    You can get the same rates at any other big bank but with more flexibility. 10% payment increase once in 12 months is fine since they allow double up payments. But 10% pre-payment only once in 12 months is not on par with other banks. Even BMO’s restrictive “special offer” allows as many >$100 pre-payments a year as you want wich can serve as regula payment increase or double-ups with some creativity.
    Where did you get the stat that 1 in 3 Canadians is an RBC client?

  17. isnt it false advertising for RBC to advertize certain rates til the end of the month and then pull the pin three weeks early…if its not illegal then it certainly is unethical….a bank advertizes a certain rate…has it on websites and so forth and then says, sorry, we didnt really mean til the end of the month…that was a fib on our part…perhaps a consumer group shld challenge RBC over false advertising

  18. They have the fine print: “Offer may be changed, withdrawn or extended at any time, without notice.”
    Do not expect the corporations to be ethical. They are here to make money. As it has been said here “banks are not our friends”.
    One still can get the fixed rate bellow 3% (2.89 or better) for 4 years. Shop around or find a good broker.

  19. Hi A.J.,
    Lender promotions are usually subject to change at any time, even if they quote an expected application deadline. Banks fully disclose these exceptions because they need to allow for funding cost changes, which they can’t control.

  20. RBC had a clause : “we may at any time change a fee, charge a new fee without notice to you”
    Only a person with developmental difficulties may accept this as a normal clause in a contract.
    “You accept to bend over whenever we require” kinda clause

  21. Rob,
    I do not know if you have covered this topic in one of your great articles but many people would be interested to learn how lenders come up with the mortgage pricing and how much money they are making off the mortgages. That will help people to understand if they are getting a fair deal on a mortgage or being gouged.
    Some people think the banks make the entire amount of the interest they paid to the bank. Such people probably do not read web sites like yours so you cannot help them.
    Others look at the government bond performance. My understanding, however, that lenders are not able to sell their bonds for the same price as the government. For example, while the 5-year government bond was at 1.4, the BMO sold their 5-year notes at 2.544 before coming up with the 2.99 special. So it is not really a 160 bp difference. There is also probably a difference in the funds cost for lenders depending on their credit rating.
    A branch manager at one of the big banks told me they do not make money off mortgages but offer the mortgages to sell us other products. This is something hard to believe.
    Where is the truth? How can we estimate the cost of borrowing for lenders based on publicly available info?
    In regards to the variable rate. Although the Bank of Canada rate stays at 1% the VRM premium on Prime changes. As per the BOC the key policy rate is the “target for the overnight rate … at which major financial institutions borrow and lend one-day funds among themselves”. How do the lenders come up with the VRM premium?
    Thank you.

  22. Hi tcm1,
    Unfortunately that would not be an article. It would be a whole book. :)
    There are a huge number of inputs that determine mortgage rates and lender margins. We’ve talked about many in varying degrees over the past 5 years but you’d need to do a site search to find the story links. I don’t have a list of related stories on hand unfortunately. That said, I totally agree, it would make for a fascinating article. :)
    P.S. 5-year corporate bonds weren’t the primary funding source for BMO’s 2.99% special. They have a variety of cheaper and shorter duration funding sources they can tap.
    On Jan 23, for example, BMO sold $2 billion of five-year mortgage-backed covered bonds to the U.S. bond market priced at 1.987%. Covered bonds are just one of multiple funding methods BMO uses, and they’re not the cheapest.

  23. Comment on this guys…..RBC yank the 2.99 on Feb 8. your 120-day penalty-free renewal date was Feb 14th. RBC apply 3 months of interest charges penalty to take 2.99 on Feb 8. 3-months of interest profit for RBC against 6 days of incurred higher ineterest losses. that’s why the CEO’s get millions bonus guys….. welcome to Canada 9I guess the americans wouldn’t put up[ with this crap, so they had to turn tail and run back to north, where gouging is OK.

  24. Well, there’s no doubt that some mortgage products have become loss leaders. That’s why the policy of discretionary pricing works well for the banks (from their perspective, that is); they can choose to take a hit on their margin with one product while making strong margins on another product that the customer may already have with the bank or may be interested in.
    As Rob mentioned, banks use numerous sources of funds to lend mortgage loans but for the most part when they decided to pull a “blitz” like BMO did in January, they knew very well going into it exactly what it’s going to cost them. After all, such marketing campaigns are not planned overnight. Keep in mind that even if they lose money on the transaction, you mitigate the loss by restricting the number of mortgages that you’re looking to issue as part of this promotion. That’s why there were all these conditions attached. Some people have definitely taken advantage of it while I’m sure many others simply couldn’t use or qualify for it.

  25. yes I am sure they specifically targeted your specific renewal date to pull the plug on this rate promotion. LMAO.

  26. I’m with Scotiabank due to a mortgage broker, and I’m in the process of switching to RBC, my daily banking institution.
    They are quite aggressive in getting me to switch, going as far as offering me the 2.9% rate.
    From my own personal experience I have had nothing but good experiences with RBC. Especially since I switched from CIBC (Terrible!!)

  27. to be honest, when I was with CIBC I was treated like dirt. I remember when I was 19, they wouldn’t give me a student credit card (no credit at the time, couldnt even get a guaranteed card!!!) I switched to RBC walked out with a visa, then a few months later a line of credit.
    I’ve had nothing but good experiences with my people at RBC. maybe my branch is an exception?

  28. Our Canadian market is heating up as a result of historical low interest rates. The income is not growing at the same pace, so I believe that soon low priced condos will become the first choice of first time buyers. Main reason will be affordability and mortgage qualification that will drive our condo market to new heights.

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