Rate cuts on Variable Rate Mortgages

[mortgageman]

Hi All,
Good news for those of you with variable rate mortgages. The Bank of Canada has cut it`s key lending rate by .75 percent. A couple of banks have reduced their prime rates by half a percent. Others should follow in the next few hours or days. Enjoy your extra cash flow.
However, you can probably expect banks to increase the premium on new variable rate mortgages as they try to recoup costs.
All the best
Jason

 

[jkcomm]

Hi Jason,

The half a percent cut in the prime rate is definitely a relief! I am just curious to see if there will be public outcry for the banks to match the 0.75% cut offered by the Bank of Canada.

James

 

[terri]

QUOTE However, you can probably expect banks to increase the premium on new variable rate mortgages as they try to recoup costs.

Yes, this is what I`m curious about, just about to apply for a new mortgage.

Has anyone heard anything about what variable rates are at or where they`re going?

Terri

 

[MikeMcCrae]

Best I got at the moment is prime plus .6, but the day is young. Who knows where it will end up. Certainly a great time to buy!

 

[mortgageman]

I suspect if the banks don`t toe the line and pass on the full rate cut the feds will threaten them by reminding them such action will do nothing to help the cause of bank mergers, (if that even remains a distant hope for the bankers) or if they find themselves needing help on some other front. But that`s for the politicians and bankers to hammer out.
Mike`s right. Prime plus .6 is the best I know of at the moment.

 

[TommyK]

What surprises me is most banks are offering great 2-year GICs at 4%-4.5%. High-interest rate accounts are anywhere from 2.75%-3.75% (HSBC`s special offer before March 2009).

And lending rate is at 3.5%???

Where is the spread? Very strange.

Tommy

 

[21krunner]

Anyone have any opinion on "when or if" achieveable rates on variable mortgages will return to below banking prime territory? I happen to have 5 of them due in 2011 and am obviously hoping that all will be straightened out (ie back to historiocal pricing models) by then. However, I have also read somewhere that it may take an entire generation before we see mortgage rates in Canada below banking prime.

 

[Thomas Beyer]

QUOTE (21krunner @ Dec 14 2008, 09:23 AM) Anyone have any opinion on "when or if" achieveable rates on variable mortgages will return to below banking prime territory? I happen to have 5 of them due in 2011 and am obviously hoping that all will be straightened out (ie back to historiocal pricing models) by then. However, I have also read somewhere that it may take an entire generation before we see mortgage rates in Canada below banking prime.
real estate and inflationary risk is somewhat higher today .. and all banks have to make up some lost money .. so anything below 4% would surprise me .. prime + 0.6% is a GREAT rate !!

as long as a mortgage rate is below INFLATION and you can cash-flow and hold medium- to long-term .. that is a good time to buy (i.e.. MOST TIMES IN HISTORY !!) .. as real estate, on average, goes up with inflation .. REIN teaches you to fine-tune it to buy below market, and in above average areas of the world or above average areas of a town!! True for the 1700s, in 1820, for the 1920s, in 1950, the 80`s or 90`s or today !

 

[DanBarton]

QUOTE (TommyK @ Dec 9 2008, 08:41 PM) What surprises me is most banks are offering great 2-year GICs at 4%-4.5%. High-interest rate accounts are anywhere from 2.75%-3.75% (HSBC`s special offer before March 2009).

And lending rate is at 3.5%???

Where is the spread? Very strange.

Tommy

Hey Tommy,

Good point, the Bank`s spread is created through leveraging the money you invest into your GIC many times over, creating a much higher return than 3.5% for them, but of course leverage cuts both ways as we are experiencing in the market right now.

Hope that helps,

Dan

 

[RobMacdonald]

I had the opporunity of hearing Benjamin Tal speak a week ago. His prediction is that we will NEVER see deep discounted VRM`s again. Prime, maybe prime - .25%, prime +.25%, but the days of the cheap VRM are gone.

He expected over the next 6 to 12 months that the VRM pricing would relax but the exact dates are unknown.

On Friday, TD Bank adjusted the pricing on their VRM from Prime + .6% to Prime + .8%. So it`s anyone`s guess what the state of the world markets will have on pricing. Maybe they just jumped the gun.

 

[Thomas Beyer]

QUOTE (RobMacdonaldCMT @ Dec 15 2008, 10:31 AM) On Friday, TD Bank adjusted the pricing on their VRM from Prime + .6% to Prime + .8%. So it`s anyone`s guess what the state of the world markets will have on pricing. Maybe they just jumped the gun.
which "prime" ?

It seems now that most bank`s "prime" rate now differs SIGNIFICANTLY from the inter-bank prime rate !!

could you post here what the 5 major banks use for their internal prime rate

 

[RobMacdonald]

Hi Thomas,

The stars have all aligned with the 5 big banks.

RBC 3.5%
Scotia 3.5%
TDCT 3.5%
CIBC 3.5%
BMO 3.5%

So the initial rate available through TDCT has now moved from 4.1% to 4.3%.

 

[Thomas Beyer]

QUOTE (RobMacdonaldCMT @ Dec 16 2008, 01:09 AM) Hi Thomas,

The stars have all aligned with the 5 big banks.

RBC 3.5%
Scotia 3.5%
TDCT 3.5%
CIBC 3.5%
BMO 3.5%

So the initial rate available through TDCT has now moved from 4.1% to 4.3%.
thanks .. so the best variable these days is prime + 0.6%, i.e. 4.1% ? any word that this may change soon ? or is this 4.1% a good "go forward" figure to use for variable rate mortgages into mid 2009 ?

 

[tbarcier]

SO as the prime goes lower the mortgage rate goes higher *sigh*

 

[nepoez]

Didn`t Benjamin Tal also say oil isn`t going to go below $100?

QUOTE (RobMacdonaldCMT @ Dec 15 2008, 09:31 AM) I had the opporunity of hearing Benjamin Tal speak a week ago. His prediction is that we will NEVER see deep discounted VRM`s again. Prime, maybe prime - .25%, prime +.25%, but the days of the cheap VRM are gone.

He expected over the next 6 to 12 months that the VRM pricing would relax but the exact dates are unknown.

On Friday, TD Bank adjusted the pricing on their VRM from Prime + .6% to Prime + .8%. So it`s anyone`s guess what the state of the world markets will have on pricing. Maybe they just jumped the gun.

 

[RobMacdonald]

I haven`t heard any further comments regarding the adjustment to the variable pricing. Prime + 1% still seems to be the norm, with TD at Pime + .8% and one other lender at Prime + .8%.

Everyday I am seeing decreases to the fixed rates, 5 year fixed is at 4.99% and 1 year closed terms are as low as 4.00%. My feeling is there is still room in the fixed rates to move further downward.

I would predict that 4.1% is a good estimate of the best VRM rate in the short term, but we may see a further discount to prime on January 20th.

My advice is to remain in either an open VRM, or a convertible 1 year fixed term, where you will be able to lock in to low fixed term rate sometime in the next 6 to 18 months. The timing will depend on your tolerance, but i expect there will be some opportunities.