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We’re Floating Closer to Prime – 1.00%

—The Mortgage Report: Sept. 18—

Variable Discounts Improve Further

  • Bankers are making more dinero on floating-rate loans. That’s motivating them to cough up some profit and sharpen their variable rate pencils. Online brokers are now effectively as low as prime – 0.93% on default-insured variables in some provinces. Uninsured customers (including those refinancing) get milked for more, as usual, but they’re still fetching as low as prime – 0.66 (1.79%).
  • What’s driving the improvement? Well, for one thing, banker’s acceptance (BA) yields are at 10-year lows, as measured by 3-month CDOR. That’s widened the spread between prime rate and BAs to 194 basis points, or 17 bps above the 10-year average. (Think of that spread as a very rough proxy for lender profit on a floating-rate mortgage. The highest on record going back to 1992, was 219 bps, according to Bloomberg.)
  • A widening of the prime – BA spread usually correlates with improving variable mortgage discounts and this time is no exception. We suspect we’ll see prime – 1.00% (1.45%) rates again as soon as October or November.

TD Cuts

  • TD Canada Trust trimmed two official variable rates today:
  • The comfy green chair lender also dropped the following special fixed rates on Friday:
    • 3yr: 2.19% to 2.14%
    • 5yr (uninsured): 2.24% to 2.14%
    • 5yr (high ratio): 2.07% to 1.97%
      • That matches CIBC for the lowest widely advertised 5-year fixed rate in Canada.
      • Meanwhile, Scotiabank is picking off its Big 6 peers with insured rates as low as 1.68%, albeit behind the curtains of its login-secured eHOME website.

The Agency Soon-to-Be-Formerly Known as CMHC

  • …wants to dismantle its 41-year old brand and take the “mortgage” out of Canada Mortgage and Housing Corporation. Don’t mind the fact that 98% of its non-governmental funding/revenue last year was mortgage related. Its CEO is backing the name: “Housing Canada,” but the Twittersphere (link 2) is not exactly sold on the idea. (Parental discretion is advised on those links…it’s Twitter).

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  • Jeremy says:

    prime – 1.79% eh? sign me up!

  • David64 says:

    What is your prediction for the next 3 to 6 months when mortgage deferrals and CERB money are gone? Is it going to help supply by forcing more homes/condos coming to the market due to owner not being able to afford it any more (or not a good investment any more)? Specially for short term rental places like airBnB and condos.

    My other question which may not be in your field of speciality: are we seeing a permanent shift from compact condos to bigger ones, townhouses or houses in suburbs, or it is all temporarily for a year or so?

  • Antoine says:


    -I refinanced my mortgage with one of the 6 major banks for my plex last May with a rate of 2.44% (the right decision for us at the time, no remorse 🙂 ).

    – For the last few weeks, I’m thinking about how to take advantage of current the lower rates. One option would be to convert to 7 -year fixed rate at no charge with the same rate with the same bank.

    -Considering the penalty will be relatively low after 5 years , inflation might increase over that period of time and there is little chance that we will sell during this period, do you think this is a good option? Any other suggestions to share ?

    -Finally, is there a Spy rate web site for commercial and agricultural mortgage ?

  • Michael says:

    HI Antoine,

    The same thing happened to me. I signed a 5Y fixed deal with Scotia in Apr this year. I paid 3.04% on my deal. I broke the contract in Sep and paid the penalty. Only costed by ~3k to do so. I moved to TD and paying 2.16% for my 4Y money. It seems like TD is offering attractive deal for readvanceable product etc. Might just break the contract and move over since your penalty might be low.

  • John says:

    TD offered me 5 year variable 1.65 and 1.75 fixed on refinancing.

  • Antoine says:

    Thanks Michael and John for your insight

  • Eugene Stewart Ross says:

    I am currently living in Ontario and I am in my last year of my five years. Currently we are paying 2.49 %.
    I don’t know how well I can do?
    Both my wife and I have excellent credit rating.
    They both have been paying extra all the time on our mortgage.
    And when I see everyone else getting renewal percentages like 1.79 I never see that advertises anywhere I only see things like that advertised on a high ratio.
    I would love some advice and some opinions?

    • The Spy says:

      Hi Eugene,
      If you’re well qualified with a marketable home in a urban area, you can find 1.83% to 1.84% advertised online for uninsured mortgages. That’s pretty close.
      1.79% would be offered on a case-by-case discretionary basis only. It would have to be negotiated, likely with a major bank.
      If you qualify for low-ratio insurable rates, you can find 1.58% to 1.77% depending on your loan-to-value.

  • Jagirdaar says:

    @John – Is the TD rate for insured or uninsured? What’s the LTV ratio? Also is this the contract rate or cashback effective rate?

  • John says:

    Jagirdaar- Rates are for uninsured mortgage and are contract rate. LTV ratio is around 50%.

  • Felix Wan says:

    Hi, I’m in BC, I. Just sign a fixed 5 yr @2.89%. with Scotia on Feb.
    I believe the penalty would be over 10k, I plan to sell my condo and switch to townhouse in a year of time.
    Does it worth to break the contract and switch.
    But I am on EI at this moment by I am in excellent credit score.

    • The Spy says:

      Hi Felix, At most mainstream lenders, unemployed borrowers cannot port a mortgage to a new property if they’re unable to debt service the loan.

      As for the advisability of breaking your mortgage, that decision requires some math. Any experienced broker can help you run the numbers.

  • harburn11 says:

    I think Eugene makes an excellent point. I am in the same boat. A suggestion? Change your otherwise excellent site to show ‘insured’ on your displays, chats etc.

  • Hey Rob,

    With the big drop in rates over the past year, I think you have lots of readers looking for ways to get out of their current mortgage without paying huge IRD penalties. I’ve looked over Scotia’s and BMO’s mortgage terms, and the only idea I can come up with is getting an equity take-out 2nd mortgage from a lender like CIBC’s Simplii. Then use the funds to make the maximum prepayment (10-20%), and increase the monthly payments. If you time it close to the anniversary date of the mortgage, you can do two pre-payments.

    I know in the past you’ve suggested talking to your lender. Scotia suggested blend-and-extend, but that doesn’t reduce total interest costs.

    Do you have any other suggestions?

    • The Spy says:

      Hi Ralph,

      Making a prepayment is one way to reduce a portion of the penalty expense.
      Sometimes you don’t even have to make a prepayment. If you’re refinancing with the same lender, some will credit your unused prepayment privileges to lower the prepayment charge accordingly.

      The best way to avoid painful IRDs is to choose a fair penalty lender from the get-go.

  • EatAtJoes says:

    Hey Ralph Doncaster, Does Scotia offer you Blend to Term or Blend to Maturity by a chance, ask them and if they don’t ask why not?

  • I didn’t ask Scotia about the details. As I said, blending doesn’t reduce total interest costs.

  • John says:

    Hi, I am in Ontario, just closed with Scotia, non insured 5 yr mortgage, 1.82% fixed. Typically would have gone for variable, but at this level, the fixed rate is too good to leave on the table.

  • Shawn says:

    Hi @The Spy, if we get a fixed mortgage now, what will be the IRD penalty for big banks in the future? Are we expecting very low penalty for fixed mortgage under low interest rate?

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