RBC Lowers Mortgage Interest Rates – Other Major Banks Follow Suit
RBC was first out of the gate, so to speak. This past weekend, this major Canadian bank shaved an average of 10 basis points off of various fixed-rate mortgages. The five-year closed rate went down to 3.69 percent. No celebration, no fanfare. The rate just quietly dropped from its previous 3.89 percent. It wasn’t long before more of Canada’s major banks followed suit.
At last count three banks joined the discounting mortgage rates parade. Scotiabank lowered its five-year fixed rate to 3.49 percent this past Tuesday. Previously it was at 3.59 percent. Not to be outdone Bank of Montreal, or BMO, lowered its five-year fixed rate by 20 basis points, from 3.89 percent to 3.69 percent. TD Canada Trust lowered its five-year fixed to 3.69 percent, a 10 basis point reduction. Other mortgage loan terms and packages also saw reductions at the latter two banks. Then there is True North Mortgage, a brokerage that is offering a mortgage rate of 3.19 percent, currently the lowest in the industry.
So why are we seeing the sudden reductions? Word has it that the major banks were responding to a marked decline in those five-year term government bonds. These have lost 26 basis points since January 1 of this year. This makes it less expensive for banks to borrow funds, which they in turn lend to customers. RBC saw the potential for increased business and the other banks just followed their lead.
Even with the discounts mortgage rates aren’t even close to what they were during the same timeframe in 2013. Last January you could get a five-year fixed mortgage for as little as 2.64 percent. Rates have steadily been going up since May of 2013. The Canadian mortgage market is tied in with that of the United States. Last May the Federal Reserve of the United States announced it was cutting back on major bond buy-outs on the domestic front. That caused bond rates in Canada to rise and they expected to keep rising for at least a portion of 2014.
But a less than stellar economic report in December that showed a higher national unemployment rate and a weaker economic market caused banks to rethink their lending rates. As a result there is expected to be increased competition in the mortgage market throughout the coming year. Real estate sales are expected to taper off and/or stabilize, putting more of a competitive edge in that market. Despite the economic news the benchmark rate at the Bank of Canada is still sitting at 1 percent. This is the rate banks use to figure short term lending rates for mortgages taken out for no more than a year.
How will this affect the real estate market across Canada? Prices for homes are creeping up and the lower rates may open up the market to first-time buyers that may not have qualified. The real estate market is expected to be on the slow side but holding its own throughout much of Canada. These decreases are minimal, in most cases 10 basis points, but that may be enough to keep Canada’s real estate market in balanced territory.