Mortgage Snapshot

Posted by under Mortgage News

by Rate Hub

Good time to get a mortgage

The mortgage market has been buzzing with activity recently and home buyers in need of a mortgage should definitely be paying attention.

For two consecutive weeks the “Big Banks” in Canada have lowered their fixed mortgage rates, providing a window of opportunity for those shopping for the best mortgage rates.

Last week, prominent banks including the Royal Bank of Canada (RBC) and the Bank of Montreal (BMO) reduced their fixed rates by around a tenth of a percentage. This was followed by other lending institutions and initiated a downward trend in mortgage rates. Without disappointment, at the beginning of this week, BMO, TD, RBC and Scotiabank all dropped their fixed mortgage rates across the board by another tenth of a percentage. CIBC followed suit on Tuesday along with other lenders and banks.

There are a couple factors driving this downward trend. First, the yields on bonds, which lenders issue to fund mortgages, fell, reducing the cost of borrowing; and second, lenders are facing increased competition. Many banks in their latest earnings reports cited a reduction in the amount of mortgage borrowing, and, thus, a more competitive environment for maintaining and growing market share. Many banks have responded by putting additional resources in direct and mobile banking, and lowering their mortgage rates.

Variable mortgage rates have also trended downwards, despite the cost of borrowing remaining unchanged. Variable mortgage rates follow the prime lending rate as set by the central Bank of Canada, which has not changed for the sixth consecutive policy meeting. Most banks have held their variable rates at or above 2.80% until Scotiabank’s 5-year variable rate made a surprising drop to 2.50% on June 6th. Mortgage brokers are also listing lower rates, which can be found for as low as 2.05%. We may see other banks soon follow suit.

Once again, the reduced ‘spread’ (or difference between the rate of return collected from borrowers versus the rate of interest paid to fund the mortgages) is putting increased financial pressure on banks. So, this low interest rate environment can be viewed as not sustainable. A prime lending rate increase has been expected for awhile now, and most agree will likely occur in the third quarter of the year. As Finance Minister Jim Flaherty echoed on the day of the latest interest rate announcement ‘it’s only a matter of time’ before interest rates rise.

On the whole, whether you are in the market for a fixed or variable mortgage rate, it is a good time to consider getting a pre-approval.


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