Scotiabank has jumped into the summer mortgage rate-cutting frenzy, unveiling a limited-time five-year fixed rate of 2.97 per cent. Available until June 7th, this discounted rate is an aggressive play by Scotia to capture the interest of seasonal home buyers. It also usurps the status of lowest-priced big bank rate from BMO, who has made headlines with their 2.99 per cent offering three years running.
A Full-Service Mortgage Product
Unlike BMO’s last 2.99 foray (the lender last offered the discount in March – their five-year fixed is currently 3.29 per cent), which limited buyers’ renewal options and offered little in prepayment flexibility, Scotia’s product is a full-service product, complete with the following features:
Available to both high-ratio and conventional buyers
Minimum purchase of $100,000 is required
Purchases must be closed within 90 days of pre-approval
15 per cent prepayment privileges – buyers can either pay 15 per cent of their original total principal, or amp up their regular payments by that amount.
5 per cent cash back of the mortgage principal, up front
Applicable for accelerated payments
Match a Payment and Miss a Payment benefits, also called “mortgage vacations”. click here to learn more about how they work.>
Comparing Gets Competitive
While this move from Scotia is a great sign that the bigger banks are looking to get more competitive with their pricing, there are better deals out there for savvy rate hunters. For example, the lowest rate in Ontario for a five-year fixed is 2.84 per cent. Just how much would YOU save with a rate that low? Let’s break it down using our Mortgage Payment Calculator:
Mortgage Rate: 2.84 per cent
Mortgage Value: $378,000 (average resale price, CMHC)
Amortization: 25 Years
Monthly payments: $1,758
Compared to: 2.97%
Monthly payment: $1,783
Monthly Savings: $25
Annual Savings: $300
25-Year Amortization Savings: $7,500
On the flip side… let’s compare the savings from Scotia’s rate with the next lowest big bank offering:
Monthly Payment: $1,783
Monthly Payment: $1,846
Monthly Savings: $63
Annual Savings: $756
25-Year Amortization Savings: $18,900
Just more proof that it pays to compare! Want to see how much you could save with the best rates in your region? Check out the best mortgage rates here!
Why Are Rates Dropping?
While Scotia’s main motive is to attract summer home buyers with an attractive deal, their fixed-rate wiggle room may be possible due to recent slack in bond yields, which move in tandem with fixed-rate pricing. Today’s five-year Canadian bond yield sit at 1.571, 98 basis points lower than 1.669 per cent four weeks ago. Lower yields are a sign of strong investor interest and national economic health, which can prompt banks to discount their fixed offerings.
It was such low-yield environments that paved the way for a similar mortgage rate war last year, and prompted former Finance Minister Jim Flaherty to chide banks (specifically BMO) for irresponsible discounting. However, current Finance Minister Joe Oliver has famously stated he has no plans to meddle with the mortgage market as his predecessor did. Perhaps lenders are looking to take advantage of this more lenient stance.