NEWS – Banks Unprofitable Holding Discount on Variable Rate Mortgage Oct 15th 2008

Mortgage Borrowers Pushed To Lock In Variable Rates

– 15 Oct 2008 National Post-Garry Marr

Canadian banks are trying to convince consumers to lock in their mortgage rates because more than 20% of the home loans they have negotiated have become unprofitable, according to industry sources.

The push has come after the banks cut the discount they offered to consumers with variable-rate products tied to the prime lending rate. Two weeks ago a consumer could get a variable rate product at 0.60 percentage points below prime; today it is one percentage point above prime.
Anybody with a mortgage negotiated in the past two years would be out of their mind to lock in to, say, a five year term, he said. If you’ve got a mortgage rate negotiated below prime, you have a dinosaur. It doesn’t exist anywhere. You should hold onto it until the end of the term.

Last week, the Bank of Canada lowered interest rates by 50 basis points only to see the major banks cut their prime lending rate by half that amount. “At the prime minus rates we were basically earning zero or negative, said Ms. Dal Bianco, vice-president of real estate-secured lending with Toronto-Dominion Bank.

With a cost of funds generally above 4% because of the lack of liquidity in the market. For those now entering the housing market, the rate is 5.25% for a variable rate product, but Ms. Dal Bianco said that might not be high enough. “We are not making much money on those, if anything.” she said.


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