In the last Monetary Policy Committee meeting the Bank of Canada re-iterated their commitment to keep the target for the overnight rate which influences variable mortgage rates, at its current 0.25% until at least July 2010. As a result, that would make you think that variable mortgage rates would stay constant and there would be only way for them to go – up.
Well, think again. Variable rates from the big banks were hovering around Prime, 2.25%, for the past few months, then we saw RBC & TD drop their 5 variable closed rates to Prime – 0.10%, or 2.15%. This is the first time the banks have lowered these rates below Prime since the international economic crisis began.
Mortgage brokers were offering lower variable rates down to Prime – 0.30% (1.90)% for a 5 year term, and then there was a new product introduced by a couple lenders a few weeks ago of a 1 year variable closed rate which was offered at 1.85%.
But we still hadn’t seen the big discounts to Prime that were around 18 months ago, and that our Mortgage Rate Outlook Panel had said would return this month. Then this morning, ING DIRECT came out with a 5 year variable closed rate through one of our broker partners at Prime – 0.45% or 1.80%, with 25% annual pre-payment privileges. This is the lowest mortgage rate we’ve seen thus far.
View the 1.80% 5 year variable closed rate here.
So what happened? Why are variable rates dropping even though the Bank of Canada hasn’t changed its main interest rate? As some of our panel members explained:
Rob McLister, Editor, CanadianMortgageTrends.com: Prime rate won’t drop but discounts to prime will get juicier. Don’t expect anything to celebrate over, but variable-rate discounts should widen slightly from today’s typical prime – 0.15%. An average of prime – 0.25% appears doable in 30 days, and some brokers will likely advertise 10-20 basis points below this number.
George Hugh, Vice-President, Treasury, ING DIRECT: With the threat of increasing interest rates over the next year 12 to 18 months, many banks are in favour of placing their clients into VRM mortgages with the hope of locking them into a higher fixed rate in the future. As a result, you can expect to see VRM rates below 2.00%.
I don’t know if we’ll see the Prime – 1.00% variable rates before Governor Carney increases rates again in Q3 2010, but it looks like the trend is we’ll see larger discounts to prime over the next few months.
To stay on top of things, you can visit our latest mortgage rate changes page or sign up to RateWatch and we’ll fire you over an email whenever the best mortgage rates change on RateSupermarket.ca.
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