Shell Game: The Bank of Canada has hacked 150 bps off its policy rate in just 23 days. Banks have matched the entire drop with 150 bps of prime rate cuts. BoC Governor Stephen Poloz said that was vital to “cushion” the COVID-19 “blow” for consumers. And, if you only considered banks’ prime rate reductions, they’d look quite charitable. But, by this time next month, we suspect banks will have slashed variable-rate discounts off prime by over 100 bps. In other words, while existing variable-rate borrowers are seeing their borrowing costs dive by 150 bps, new floating-rate borrowers are getting the shaft. (Read below on why banks aren’t totally to blame.)
Variable Alternatives: If you’ve become disenchanted by stingy variable rates, here’s a few solid substitutes:
TD Makes Three: TD Canada Trust is lowering its prime rate as well. Effective Monday, TD’s “Mortgage Prime,” which is 15 bps above the other banks’ prime rates, will drop by 50 bps to 2.60%. Almost all other mainstream lenders will be at 2.45%.
BMO Makes Four: Bank of Montreal is also lowering its prime rate by 50 bps on Monday.
CIBC Makes Five: The nation’s fifth largest bank said it will also drop its prime to 2.45% on Monday.
6:53 p.m. Update
Scotia Matches: Scotiabank has equalled RBC’s 1/2-point reduction in prime rate. The bank’s prime will fall to 2.45% on Monday.
Prime+ Variables: This drop in prime will squeeze bank profit margins further for all sorts of reasons: (A) deposit rates can’t fall by a similar amount and deposits are a vital source of floating-rate funding, (B) big-bank deposit bases are shrinking, (C) banks are being forced to put aside more money for loan losses, and (D) investors fearing credit risk are making banks pay much more than normal for their funding, despite government efforts to restore mortgage liquidity. For these reasons and others, there’s a good chance banks will keep trimming variable-rate discounts to compensate for today’s 50-bps rate drop. Some lenders will now charge prime rate plus a premium (e.g., prime + 0.25%). Fortunately, existing floating-rate mortgagors are immune from that madness and will enjoy the full benefit of today’s 50-bps reduction.
6:12 p.m. Update
RBC Cuts Prime: The nation’s largest mortgage lender is leading the way again with a 50-bps drop in its prime lending rate. The change takes effect March 30, 2020. The rest of the Big 6 banks should fall into line today or early next week. This is the third cut in prime rate in one month, which is virtually unprecedented. If the other banks match as expected, it’ll take Canada’s benchmark prime rate down to 2.45%, a level we haven’t seen since 2010.
3:15 p.m. Update
Sign of the Times: BMO Bank of Montreal boosted some of its advertised specials by up to 40 bps today:
Non-prime Omen?: When economic times get tough, some of the greatest default risk comes from borrowers with weaker credit, higher debt ratios and/or less stable income. It’s notable then that GIC rates are surging, particularly at Canada’s top non-prime lenders. The likes of Home Capital, Equitable Bank and Canadian Western Bank have lifted their 1-year GIC rates 65-75+ bps in the last few weeks (despite 150 bps in BoG rate cuts). That’s according to data from noted housing analyst Ben Rabidoux. We’ve reached out to the companies for comment on whether they’re having trouble attracting investors at normal rates. If they are—and it looks like they are—it’s another sign that crisis-driven illiquidity will push rates up for borrowers.
Noble Lenders: When the mortgage broker industry’s main application submission software went down this week, it couldn’t have happened at a worse time. Customers were rushing to apply as rates were surging. Well, some lenders have a heart. A number of them kindly agreed to honour their old (lower) rates so broker customers weren’t disadvantaged by this technical glitch. That’s almost unheard of in the mortgage business and said lenders deserve a lot of credit (there’s too many to list here).
Commercial Gridlock: “[Non-bank commercial lending] firms including Vancouver-based Trez Capital have gated open-ended funds indefinitely as the underlying assets can’t be sold fast enough to keep pace with sustained withdrawals.” More on that. Give it time and we’ll almost certainly hear similar stories from multiple residential mortgage investment corporations (MICs) and private lenders.
e-Signature Wake-up Call: Pre-COVID-19, there were several lenders who didn’t allow e-signatures. Now, some of those dinosaurs are finally seeing the light and discovering that e-signatures are enforceable. In 2020, ink is dead and customer convenience is paramount. Forward-thinking lenders transitioned to e-signatures several quarters ago.
11:57 a.m. Update
Prime Watch: We’re now waiting not-so-patiently for banks to announce Canada’s new prime rate. RBC was the first to match the @bankofcanada in the last two rate cuts and all the other banks followed.
On March 4: The BoC announced at 10 a.m. and RBC took over six hours to announce its new prime rate.
On March 13: The BoC announced an emergency cut on this Friday afternoon and RBC waited until 3:42 p.m. ET the following Monday to announce.
Few Discounts Left: Variable-rate mortgage discounts are still doing the disappearing act. Online rate leader motusbank just hiked its 5-year variable rate from 2.59% to 2.85%. That leaves Canada Life with the lowest nationally available conventional variable rate, at prime – 0.25%.
No Exception: With the economy in a tailspin, we’re seeing more lenders limit underwriting exceptions. In such cases, borrowers who don’t meet a lender’s standard guidelines are simply being declined as lenders triage huge backlogs of applications.
Trudeau: “…The Finance Minister has had conversations directly with the banks about credit-card interest rates…We are encouraging them to take action to alleviate the burden for Canadians.” (Globe)
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Hoping banks decide to once again pass on the full rate cut. My mortgage will drop to 1.6% if so! Crazy to think those that went variable within the last month or so could see their rates drop to near 1% or even below. I’ve seen a few people that have rates in the prime – 1.4 to 1.5 range
Hi Gazer, GIC rates are starting to spike at some prime lenders as well. 1yr GIC rates at Tangerine (a rock-solid bank owned by Scotiabank) hit 2.80% on Friday, up 100 bps since the BoC began cutting this month.
I am due to renew my mortgage with TD by Wednesday. Missed the boat on the lower rates a week ago. Now that they have shot back up do you think I should take the hit on an open mortgage rate for a few months until it drops again? Is it realistic to expect these higher rates to only last a few months?
Almost same case as Nick. I’m switching for a 5yr fixed at 2.49 in second week of April but they haven’t confirmed the appointment with the notary yet.. and I don’t know if that would happen before the closing date. Should I enter in an open 6-month term at 6.7 until I can finish the mortgage activation or should I stay with my lender who gives me a 4-year fixed at 2.31?
Hi James, Assuming the current lender’s features/flexibility matched one’s needs, 2.31% for four years is solid. The renewal rate would have to be roughly 100 bps higher in four years for the borrower to pay more interest in a 4yr term. That’s possible but it’s a fair gamble if the borrower is very well qualified. A 4yr fixed also reduces the chances you’ll pay a penalty for breaking before 5 years.
For anyone with uncertainty related to a switch that’s closing near-term, renewing into an open mortgage makes sense. The high rate is relatively immaterial as it shouldn’t apply for long.
What options do mortgage holders have at a financial institution not so quick to drop their prime rate? At RFA (formerly Street) and they have only passed along the first of the three 50 basis point reductions. Have a good rate (Prime minus 1.1) so not looking to move but realize that is one of the options.
Looking for some advise, my mortgage is set to expire in the next month and TD has made several offers. Is a fixed rate the right choice right now or a variable??
I have till Jun to renew my Mortgage. I have a rate till Tue, bank is holding it for me at 2.54 5yr fixed. I could renew early. Wondering if that’s a good rate.
Hi Rob and Ron, It’s impossible to personalize recommendations with limited info but I can tell you that 2.54% is an exceptional rate for a 5-year fixed. *If* a 5-year fixed were in fact the best term for you, and *if* the lender had the features and flexibility you needed, this would be a hard rate to turn down.
From a purely interest cost standpoint, no one knows how soon prime rate will rebound but one can reasonably assume that:
A) There’s a good chance prime rate won’t drop much more, if at all (even though technically it could)
B) Prime could go sideways for at least 1-2 years, assuming past recessions are a guide
Thus, if one runs a scenario (using a calculator like this: https://www.ratespy.com/amortization-schedule ) it’s easy to see that prime could jump a few points starting in two years and a 1.45% starting rate would still win.
Of course, this isn’t advice. Just some facts to consider.
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34 Comments
Hoping banks decide to once again pass on the full rate cut. My mortgage will drop to 1.6% if so! Crazy to think those that went variable within the last month or so could see their rates drop to near 1% or even below. I’ve seen a few people that have rates in the prime – 1.4 to 1.5 range
Thanks Spy for all those continuous update.
@Eric, which bank did give Prime -1.4%??
Wow. If you compare Home Bank’s rates today https://www.cannex.com/public/term02e.html
to its rates five days ago
https://web.archive.org/web/20200322062525/https://www.cannex.com/public/term02e.html
the 1 year GIC has gone from 2.09% to 2.53% in five days.
Are they having another run on their deposits or something?
Hi Gazer, GIC rates are starting to spike at some prime lenders as well. 1yr GIC rates at Tangerine (a rock-solid bank owned by Scotiabank) hit 2.80% on Friday, up 100 bps since the BoC began cutting this month.
I’m also curious to know which bank offers prime -1.4%.
Hi Aziz, There are no lenders currently offering anywhere close to prime – 1.40% anymore (to new customers).
For new applicants, the lowest variable rate we’re aware of in Canada is prime – 0.66% from Prospera Credit Union in B.C.: https://www.ratespy.com/best-mortgage-rates/5-year/variable
I think Eric is referring to people, I.e. Customers, not banks that offer it as no one is offering much below -.25% per this article.
Got approval today from Simplii, 5yr variable prime -0.91, 1.54%
TD announce yet?
Hi DJ, Yes, all the Big 5 banks cut their prime rates by 0.50 percentage points, effective Monday.
Any idea when MCAP will announce?
I have it with MCAP -1.25 BUT THEY HAVNT DROPPED THE RATES YET. heard that next billing cycle they will reduce it but on papers its prime -1.25%
Hi Waqar and Rob, MCAP’s prime will reportedly change on April 1.
I am due to renew my mortgage with TD by Wednesday. Missed the boat on the lower rates a week ago. Now that they have shot back up do you think I should take the hit on an open mortgage rate for a few months until it drops again? Is it realistic to expect these higher rates to only last a few months?
Hi Nick, Great question. We’ll tackle it in this weekend’s update.
Same question as nick P, I would love answerd, looking forward the the update
From mcap.com:
“MCAP intends to change its Prime Rate to 2.95% effective April 1, 2020”
No word yet on a potential drop to 2.45%
I just renewed on 25 march 2020. Do I have a window to change my rate or am I now locked in for the term?
Hi Shawn, If the mortgage/term is closed, it would have to be broken to change the rate. Penalties apply when breaking closed mortgages.
Almost same case as Nick. I’m switching for a 5yr fixed at 2.49 in second week of April but they haven’t confirmed the appointment with the notary yet.. and I don’t know if that would happen before the closing date. Should I enter in an open 6-month term at 6.7 until I can finish the mortgage activation or should I stay with my lender who gives me a 4-year fixed at 2.31?
Hi James, Assuming the current lender’s features/flexibility matched one’s needs, 2.31% for four years is solid. The renewal rate would have to be roughly 100 bps higher in four years for the borrower to pay more interest in a 4yr term. That’s possible but it’s a fair gamble if the borrower is very well qualified. A 4yr fixed also reduces the chances you’ll pay a penalty for breaking before 5 years.
For anyone with uncertainty related to a switch that’s closing near-term, renewing into an open mortgage makes sense. The high rate is relatively immaterial as it shouldn’t apply for long.
What options do mortgage holders have at a financial institution not so quick to drop their prime rate? At RFA (formerly Street) and they have only passed along the first of the three 50 basis point reductions. Have a good rate (Prime minus 1.1) so not looking to move but realize that is one of the options.
Hi Taras, We’re told that RFA’s new prime rate will kick in next month.
Relatively few lenders apply prime rate changes immediately.
Looking for some advise, my mortgage is set to expire in the next month and TD has made several offers. Is a fixed rate the right choice right now or a variable??
Hi Jenn, Depends on so many factors, like –> https://www.ratespy.com/fixed-or-variable-rate-the-decision-checklist-02223752
Hi
I have till Jun to renew my Mortgage. I have a rate till Tue, bank is holding it for me at 2.54 5yr fixed. I could renew early. Wondering if that’s a good rate.
Your thoughts!!
Rob
Hi Rob and Ron, It’s impossible to personalize recommendations with limited info but I can tell you that 2.54% is an exceptional rate for a 5-year fixed. *If* a 5-year fixed were in fact the best term for you, and *if* the lender had the features and flexibility you needed, this would be a hard rate to turn down.
Im in the same situation as Rob.
Received prime -1.00 at RBC last month. My rate is 1.45% now. Amazing. (Insured)
@Jennyfer: Outstanding!
Any idea is RMG will move their prime rate to 2.45 as well?
I have until April 10 to renew. I have an offer of Prime -1.00 variable or 5 year 2.49% fixed from MCAP. Whaddya think? I’m torn!
Hi FP, Here’s more on choosing between fixed and variable: https://www.ratespy.com/fixed-or-variable-rate-the-decision-checklist-02223752
From a purely interest cost standpoint, no one knows how soon prime rate will rebound but one can reasonably assume that:
A) There’s a good chance prime rate won’t drop much more, if at all (even though technically it could)
B) Prime could go sideways for at least 1-2 years, assuming past recessions are a guide
Thus, if one runs a scenario (using a calculator like this: https://www.ratespy.com/amortization-schedule ) it’s easy to see that prime could jump a few points starting in two years and a 1.45% starting rate would still win.
Of course, this isn’t advice. Just some facts to consider.
@Jeff
They’re saying tomorrow. 🙂