Reverse Record: Once the scorn of financial planners across the land, reverse mortgages are increasingly becoming cornerstones of retirement planning. The main reason: rates. Equitable Bank just keeps driving reverse mortgage rates lower. Today it launched a barrage of new deals, including a 3.49% one-year fixed. That’s the lowest reverse mortgage rate in Canadian history and just a point above median 1-year fixed rates for regular mortgages. “Funding costs (GICs) continue to decrease and we pass along these decreases to consumers by way of lower rates,” says Osman Aziz, Manager, Residential Lending Strategy & Analytics at Equitable Bank. “With [five-year fixed] rates as low as 3.79% and home values in most markets rebounding to pre-pandemic levels, we expect more Canadians to consider the reverse mortgage product to age in place.” Competitor HomeEquity Bank also cut rates this week, albeit it maintains higher rates because (among other things) it offers bigger loan amounts. One thing we like about Equitable, however, is that its best website rates are also available to existing customers who renew. That’s not always the case with HomeEquity Bank.
A Flood of Float-downs: Mortgage rates keep sinking, slowly but relentlessly. You’d think that would be good for the lending business, and it is. But it’s not a cakewalk for lenders and mortgage brokers. Reason being, savvy borrowers don’t stop watching rates when their application gets approved. They often keep watching rates all the way to closing. When rates drop and they see better, they ask for better—sometimes just days before closing. As a result, some lenders are seeing an epic number of requests for rate adjustments. Anecdotally, we’re also hearing that the number of application cancellations is running high as borrowers ditch one lender/broker for another. Some lenders even ban float-downs altogether. Although, few things tick off applicants more than telling them they can’t participate in falling rates.
A Shift is Underway: COVID-weary buyers are fleeing cities for cheaper and greener (literally greener) pastures. The story from rates.ca.
The Glass Ceiling for Yields: The Bank of Canada is purchasing bonds to hold down rates. That’s keeping more money in the pockets of fixed-rate borrowers. It’s hard to say how much higher yields would be without BoC intervention, but even if it’s depressing 5-year fixed rates by a mere 10 bps, that’s $1,303 of savings over five years on the average $278,299 mortgage. Multiply that by a couple million borrowers a year and you get a meaningful macro-economic impact.
Poll: 23% say they’ll visit bank branches less often post-COVID. That will only accelerate the adoption of online mortgages. Expect more cutthroat Internet pricing from the Big 6 banks as a result. And if you want a glimpse of that future competition, check out Scotiabank eHOME pricing. Scotia is the first big bank with sub-2% five-year fixed rates (for default insured borrowers), but only for online mortgage shoppers.