Sub-1% Mortgage Rates Come to Canada, Courtesy of HSBC

Never in history has a Canadian bank advertised a mortgage rate with a zero to the left of the decimal point.

Fortunately, there’s a first for everything.

Effective December 4, 2020, HSBC Canada—who’s made a name undercutting its big bank competition—is launching the lowest rate in Canadian history: 0.99%.

This is a milestone rate, akin to landmark rates like BMO’s 2.99% 5-year fixed in 2012 and Meridian Credit Union’s 1.49% fixed in 2015.

In this case, it’s a variable rate for high-ratio insured purchases only, with a discount equivalent to prime – 1.46%. That discount is an all-time low as well, eclipsing the 145-basis-point discount offered by a handful of online brokers in November 2019.

But that’s not all. The bank is launching three more record-low rates:

  • 1.39% on a 5-year fixed for high-ratio purchases
    • A record low for a direct-from-lender rate
  • 1.59% on a 5-year fixed for uninsured purchases and switches
    • A record low
  • 1.64% on a 5-year fixed for refinances
    • A record low

It’s also got these new uninsured variable-rate offers:

  • 1.29% on a 5-year variable for uninsured purchases and switches
  • 1.34% on a 5-year variable for refinances

These are all ongoing rates, not limited-time offers with defined expiration dates. And there are no strings attached relative to HSBC’s regular products.

On low-ratio purchases and switches, HSBC is also throwing in $1,000 cash, which covers most of the legal and appraisal fees.

Should You Jump on 0.99%?

All-time low mortgage rate from HSBC

A rate below 1% is as close to free money as Canadian mortgagors have ever been. If you are risk-tolerant, financially stable and need an insured mortgage, you owe it to yourself to at least consider it — given our central bank is pledging to keep rates low until 2023.

Consider that just 20 months ago, most Canadians were paying rates three times higher. The 2.99%+ rates back then were costing people over $9,000 more interest over five years per $100,000 of mortgage.

Compared to today’s lowest nationally available 5-year fixed at 1.39%, a 0.99% rate will likely put you way ahead of the game for at least 1-2 years. The question is, what do you do when rates march higher.

If the Bank of Canada lifted rates more than 75 bps in mid-2023, you’d save more in a 5-year fixed. That is, unless you were incredibly timely (read lucky) and locked in at just the right time — before 5-year bond yields rose enough to take 5-year fixed rates higher.

The Spy’s advice: Don’t count on that. It’s not a reliable strategy due to timing challenges and rate slippage when you convert to a fixed rate.

If you’re going to bite on this 0.99%, you should be prepared to ride it out. Maybe the BoC will only hike 75 bps like it did in 2010. That would still leave you ahead with a 0.99% variable. Only if prime rate jumped a point or more around mid-2023 would a 5-year fixed save you more, based on interest cost alone.

At this point, we can’t blame any well-qualified insured borrower for wanting a piece of this rate. And HSBC’s floating-rate features are fantastic. It’s a standard-charge mortgage that’s fully open after three years and you get to convert to a fixed rate anytime without penalty (not that we’re advocating that). That’s not to mention the much more favourable 3-months’ interest penalty of a variable versus a fixed.

What’s more, unlike most lenders, you get HSBC’s best advertised refinance rate on a conversion (i.e., that rate changes over time but if you locked in an HSBC variable today, you’d get a 5-year fixed at a tremendously low 1.64%).

Just be aware that HSBC’s got a very unpleasant big bank-style prepayment penalty on its 5-year fixed, if you decide to lock in. (Penalties apply when you break a closed term before its maturity.)

How Does HSBC Do It?

HSBC mortgage rates have been leading other banks most of the time since mid-2017. And it’s not because HSBC has a materially lower funding cost than titans like RBC and TD.

HSBC’s securitization program is part of what makes insured rates like 0.99% possible. “For the last few years we’ve passed that discount from securitization on to customers,” said Jonathan Bundle, Head of Products, Wealth and Personal Banking, HSBC Bank Canada. In general, however, top global banks have relatively similar funding costs.

More important is the fact that, “We view mortgages as a key relationship product,” he says. “We look at the customer relationship as a whole, not on an individual product level.” And, “Mortgages are a good way to acquire and retain customers.”

“I wouldn’t have thought we’d have a competitive market in December,” Bundle says. “December is usually very sleepy [in the mortgage business] and normally it stays quite slow into January.”

But with COVID wiping out the spring market, home sales are still piping hot this fall. The mortgage market is also extremely competitive right now, he adds.

There’s also a lot of uncertainty about what next year will bring. That may be motivating the bank to capture business now while the getting is good.

Whatever its reasons, HSBC’s strategy is working. “We have seen good growth in the mortgage book over the last few years,” a spokesperson told us.

I suspect that “good” means “great.”

If You’re Interested

The easiest way for customers interested in one of these rates is to apply online. A mortgage specialist from the bank will then phone you back within two business days and lock in the rate. Allow 30 days to close on a new purchase.

As for whether 0.99% is the bottom, we asked Bundle if it’s possible the bank drops this rate even further. He couldn’t rule it out, of course.

“After this year, nothing surprises me anymore.”



53 Comments

  • Calvin says:

    How does HSBC prepayment penalty’s compare to TD? Is HSBC a fair penalty lender?

    Thx
    Cal

    • The Spy says:

      Hey Cal, HSBC’s variable penalty is 3-months’ interest and it’s one of the only lenders in Canada to allow you out after three years with no penalty. If you lock in, the penalty becomes the greater of 3-months’ interest or IRD, and it’s IRD formula is not pretty (i.e., it’s not a fair penalty lender on the 5-year fixed).

  • aarvee says:

    I got a variable rate with HSBC for prime minus 0.96 (1.49%) and closed on Nov 30th … hmm cannot time this perfectly..

  • Aarvee says:

    The Spy, I love this website and read all your articles.. thanks so much for all the great info. A little sad but you are right.. still a great rate!

  • Scott says:

    Very interesting.
    I’m currently looking for a mortgage on a low ratio purchase. At the moment I’m preferring 5 year fixed but have noticed others swearing by variable, expecting the rates to go down further.

    Currently considering a 5 year fixed at CIBC for 1.49% (unadvertised Black Friday promo). But that rate is dependant on an approved application by Dec 24th. Which I’m less and less confident I’ll get in time.

    Might have to reach out to HSBC and see what they can offer.

    • The Spy says:

      Hey Scott, The “others” could be right or they could be wrong. Opinions about future rates are usually of minimal value when choosing a term given the randomness of rates. In any case, 1.49% is an excellent 5yr rate. I haven’t heard of CIBC offering that on a 5-year but I do know they’re selling an excellent 1.49% four-year rate right now.

  • William says:

    I’m currently with HSBC and getting 1.34% variable (prime – 1.11%). Given the spread between variable and fixed is just 0.3%, would it make sense to lock in at 1.59% at 5-year fixed uninsured to mitigate any possibility of a BoC rate hike?

    – Edirol

  • Peter Upreti says:

    I have a little less than three years left out of 5 years RBC fixed mortgage currently paying 3.65% for an investment property. Would I be better off breaking this mortgage and switching to HSBC?

  • Roy says:

    I have a 5 year fixed opened in may this year at 2.49.
    Is it worth to switch over ?

  • Tyler says:

    @Peter i probably would say yes. First thing you need to do is request the penalty from RBC. Then don the math. Then see if you qualify for the .99% rate.

    I broke a 3.09 rate with HSBC with 4 years left for a 1.47% variable with them. Paid 14k in Penalties and fees, but will save an extra 6k over 5 years plus i refianced and took an extra 100k out of the house.

  • nicole says:

    Hi, if the penalty of switching out for mortgage refinance now is around $1500 for my mortgage term ending June 30 2021. Do you think it’s ok to refinance now rather than wait until June 30, 2021? My new mortgage loan amount would be $240000 if I do the refinance now and I’d prefer the 5yr fixed. Thanks.

  • Tim says:

    Its very unfortunate how they advertise and how the article reads. I would say 80 to 90% do not qualify for the 0.99% because the only way to get an insured mortgage is if you buy a new property with less than 20% down and pay the premiums for mortgage insurance. So anyone reading this odds are you only qualify for the uninsured mortgage rates

    • The Spy says:

      Hey Tim, I understand the disappointment of not qualifying for a great rate but all rates have conditions. The lowest rates always have more restrictive criteria. In this case the fact that roughly 1 in 5 borrowers qualify doesn’t negate the fact that it is the lowest contract mortgage rate in Canadian history. That would be like knocking a record low life insurance premium because you’re over 40 and can’t get it. As for disclosure, both the story and HSBC’s marketing clearly state the rate is for “high-ratio” mortgages only. In our case, we further define that with a context sensitive glossary link that states: “The borrower pays a premium for this insurance.” In HSBC’s case they further define it in the terms linked to the rate.

  • Paul says:

    Hello Spy,

    I thought I read somewhere in your site a few weeks ago that HSBC will start working with brokers again. Is that still true? Do you know when?

    • The Spy says:

      Hi Paul, Yes, it already has in Ontario (only).

      For now, it’s only with select DLC brokers and only on 5yr fixed and 5yr variable rates.

  • Phil says:

    Hi, does HSBC work with investors with multiple properties or are these rates just for (or mostly) first time buyers with not a lot of debt? Just wondering how investor friendly they are if there is experience dealing with them. Thank you for any feedback.

    • The Spy says:

      Hey Phil, The rates mentioned here do not apply to non-owner occupied rental properties. Last I heard there was a 10 bps rental rate surcharge and obviously only the uninsured rates would apply to non-owner occupied rentals. I heard that they’re conservative in how they treat rental income which might make it hard to qualify if you own multiple properties, but it’s best to ask them directly.

  • Robin Hood says:

    Hi Paul. You’re right. HSBC is now working exclusively with Dominion Lending only. Also, only a few select brokers across the country can access HSBC at this point in time. As an independent broker with Dominion Lending I can get you an HSBC mortgage, tell you the pros and cons of it. and also tell you all the other 100+ lender options you have across Canada. That’s the beauty of working with a mortgage broker. I work for you, not the bank :). And there are no broker fees to pay.

  • user1234 says:

    How to contact a hsbc broker like Robin hood?

  • Calvin says:

    Thank you Spy:

    I used one of those calculators online and you can pick any bank and a 5 year fixed rate and it spits out the penalty. I was surprised how cheaper the HSBC number is as to TD penalty. Is that accurate?

    Thanks
    Cal

    • The Spy says:

      Hi Calvin, The online calculators are often only roughly accurate. Sometimes it’s because they got the formula wrong and sometimes it’s because they used the wrong posted comparison rates.

      For more certainty, it’s best to use the bank’s prepayment charge calculator. See: https://www.ratespy.com/mortgage-penalty-calculators-07242914

      If you do that you should find TD’s and HSBC’s penalties comparable (e.g., ~$300 apart on a 2.99% 5yr fixed broken today with 2 years to go).

  • Carrick says:

    Always love reading your insightful articles. I wanted to double check on the piece about converting to a fixed term in the future…they will allow for the conversion based on today’s 5 year fixed rate, as opposed to the rate at time of conversion?

    • The Spy says:

      Hi Carrick, The rate you get on conversion from variable to fixed is always determined at the time of conversion. But as we speak, it would be 1.64% for a 5yr fixed.

  • Scott says:

    I would like to refinance my house, can I switch to HSBC and refinance at same time and get the $1000 towards cost as I will be staying well below 80% financing?

    • The Spy says:

      Hey Scott, HSBC says the $1,000 applies to “purchases and switches” only. Refinances are not switches — but it can’t hurt to ask them for it anyway. Worst they can say is no.

  • Sean says:

    I have a 5 year fixed rate 2.99 which expires on 2024
    Would it be worth it for me to pay 15000 penalty and get a 1.60 rate

  • Daniel says:

    I have a 2.89 5year fixed with just over 4 years left is it worth breaking it and paying the penalty?

  • Tyler says:

    Sean and Daniel, you have to do the math. First contact the bank to tell you the penalty. Then you have to use an online calculator. Google it. I like TDs the best as you can compare different terms and rates side by side.

    Scott, i am with HSBC. I don’t see how you would not get the 1k as a new customer. You may have to open a bank account with them (which i don’t use)

    Nicole, so your penalty is 3 months of interest it looks like. One thing to keep in mind you probably only have to wait another 85 days. At that point you can get a rate lock with lenders that lock for 120 days. But your case may be different as you’re refinancing and are not renewing…meaning you are going to break your mortgage no matter what.

  • Sabrina says:

    I purchased a pre construction condo which will be closing mid 2021, I currently only have a pre approval with TD and am not working with a mortgage broker. Would it be worth it for me to apply for a pre approval with HSBC?

  • Home buyer says:

    If I have a firm deal to buy a house, but closing is outside of 30 days, can I still lock in this rate?

  • Michael Rabboh says:

    Is that rate available in the US? And is that a 15 year fixed?

  • Clarence says:

    With HSBC posting .99 mortgage rate, can we expect HELOC rate to decrease also?

    What are some of the lowest HELOC rate right now in BC and from which lender(s)?

    Will a broker be able to negotiate a better rate than I do?

  • Rav says:

    HSBC only deals with CMHC so ratios have to 35/42
    Which put lot of customers out.

  • MOHAMMAD J UDDIN says:

    I am closing on a new house on April 30, 2021. Can I still qualify for this low 0.99% mortgage rate as the ad says valid till April 04, 2021?

  • Phil,
    To add to what Rob said about rental properties, HSBC told me the max LTV on them is 70%. Even if f that’s not a problem for you, you won’t like their debt service formula. They’ll add 70% of your gross rental income to get your total income, and add PITH from your rentals to your debt service costs, and your resulting TDS will need to be below 44%.
    So without a large non-rental income, your cash flow from rental properties will have to be 100 – (.7*44) = 69.2% of your gross rent.

  • Phil C says:

    @The Spy and @ Ralph,
    Thank you for the insight! I really appreciate it.

  • LV says:

    Hi, I am currently with Scotia at 2.79% and tied until June 2023 with their Total Equity deal… My penalty would be close to $4000 to refinance with someone else, plus possible other fees/charges (legal, appraisal).
    Would it be worth or would I save in the end considering all the money up front?
    Thanks.

  • Clarence says:

    Thank you Spy for your most helpful response on Dec 11,2020
    Have a great Christmas and all the best in 2021
    Clarence

  • Emma says:

    Hi,
    I have a pre approved mortgage and Appraisal done with RBC for second home that closes March 15th, but am getting HSBC quote and pre approval too. In the case of jumping ship to hsbc, am I still on hook for RBC appraisal fee ($300)?

    • The Spy says:

      Hi Emma, That’s a question for RBC. If you paid for it already then yes. If you didn’t pay and it was an automated valuation then probably not. But don’t quote me.

  • Sean says:

    Great article with down to earth advice. I will be renewing for a second time in the coming months and started with a high ratio mortgage back in 2011. My understanding is that I am “insured” for the life of my mortgage but Meridian credit union just told me I don’t get the “high ratio” rate. I am confused because I thought that “insured” status stays with me and thus, should be receiving the high ratio rate because my lender has no risk. Can you clarify?

    Thanks

    • The Spy says:

      Hi Sean, If you have not refinanced and (A) have stayed with the original lender, or (B) your second lender maintained the insurance, then yes, you are still insured.

      As you note, Meridian unfortunately does not allow borrowers to get its insured rates even though they have valid existing insurance. There are many broker-channel lenders who do allow it, however. Talk to any broker for a second opinion on the rate. If you qualify, you may save yourself 15-23 basis points versus Meridian’s 1.60%.

  • Sean says:

    Thanks very much. Seems absurd that I paid the high ratio penalty back in 2011 and didn’t receive a lower “high ratio rate” at that time because it wasnt around and now I am still offered a regular rate when there is no risk from the lender as I’m still insured.

    Thanks again. A few basis points can make a big difference.

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