The Financial Post reported that Canadian banks are encouraging customers to take out fixed rate mortgage versus variable rate loans as they are losing money on variable rate deals.
This has come about as the banks have decreased the discount on their variable rate products that are based on their Prime rates. A few weeks ago mortgage shoppers were able to secure Prime – 0.60%, which was 4.15%, where as now the best variable rates we’ve seen on RateSupermarket.ca is Prime at 4.25% or Prime + 0.25%.
As we mentioned last week, there are very odd times, and banks cost of funds have increased despite the Bank of Canada’s interest rate cut last week, in which the major lenders didn’t immediately match by dropping their Prime rates. TD said the banks were reluctant to pass on the full 50-point rate cut because they were losing money on variable-rate products.
“At the prime minus rates we were basically earning zero or negative. We kept holding off [cutting the discount],” said Ms. Dal Bianco, adding that in the past year 50% of her bank’s new mortgages were variable-rate products.
The article went on to mention:
- The move into variable mortgages tied to prime has come in the last five year with many of the banks promoting products that allow consumers to float with prime but lock in a rate at any time during the term of their mortgage
- CAAMP says, as of 2007, 21% of mortgages were variable rate, 72% were fixed rate and 7% were a mix of the two
If you’re looking for a mortgage and unsure about whether to go down the fixed or variable route, make sure to compare mortgage rates in the market and then discuss your options with a mortgage professional.