Brokers: Rate drops ignite client preference for fixed

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Brokers are finally seeing a change in consumer appetite for risk after the second chop to fixed rates in two weeks.

“Up until a couple of weeks ago, we were still seeing 50 per cent of our clients coming in looking for fixed and the other 50 per cent looking for variable-rate mortgages,” Dan Mass, owner of Verico Canada First Mortgage, told MortgageBrokerNews.ca. “But that’s now changed, we’re seeing 80 per cent now looking for fixed and only 20 per cent looking for variable since the fixed rates started dropping.”

RBC set off another chain of falling rates last Friday by shaving 0.1 percentage points off its posted five-year fixed, taking it to 5.49 per cent. Over the weekend, TD Bank, Scotiabank, BMO and Laurentian followed suit, with most broker channel lenders having now effecting the change. Their collective move follows another 10-basis-point chop last week, although the most recent price cut also applies to the posted and special rates on one-, two-, three- and four-year loans.

Lenders are now pointing to falling yields on government bonds across a range of terms as impetus for the rate decrease. The decline actually runs counter to what most economists had predicted for the remainder of 2011. It also comes as consumers react to media speculation about a possible hike in the Central Bank’s key Overnight rate. That move won’t come this week, said Central Bank Governor Mark Carney Tuesday. Still, the narrowing gap between fixed and variable rates is expected to send many homeowners to their lenders looking to lock in and join the more-than-60-per cent of Canadian homeowners who have opted for the security of a fixed-rate mortgage.

Mass’s observations reflect that change only in part. The boom in business many brokers were looking for as the gap between variable and fixed narrowed hasn’t yet materialized, he said.
Still, another broker is predicting that increase in activity may come this fall as the banks near their year-ends and look to stir up more business.

“I think there’s still more room for lenders to drop their fixed rates before hitting the floor,” said Corey Romyn, an agent and COO for Taurus Mortgages in the Toronto area. “We’ve seen that in the last few years, especially when volumes are down for most lenders, as they are this year.”  


  Still, there is a limiting factor at play. The buyers may be attracted by the rates, Romyn told MortgageBrokerNews.ca, but may ultimately find themselves frustrated by the dearth of houses for sale.

  • Shawn Dehkhodaei on 2011-06-01 3:14:48 AM

    Well, that maybe true, but the reasoning is not the rate drops; the reason for the client preference, is because of the insane amount of advertising and promotion that goes around fixed rates, because we as brokers know, the banks make WAY MORE money on fixed rates (especially on the payout penalties), than variables, and therefore I don't see this changing.

    The banks have systematically instilled fear in the hearts of consumers with regards to variable rates simply because they know that if the consumers choose variable mortgages, they'll be making less money. The reality is that a variable mortgage pays less interest in a 5-year span at ANY GIVEN time interval, and it always pays less penalties.

  • Elfie Hayes on 2011-06-01 5:21:00 AM

    Rate type is not a one size fits all solution. On any given day, a first time buyer who has bought to their comfort level is better off in a guaranteed fixed rate, where-as a seasoned home owner with plenty of equity should consider the VRM because they can better tolerate the shift in rates. Seniors who live on fixed incomes and still carry a mortgage would be wise to think fixed as well. But that's just my opinion. When advising a client on what is "best for them" I Like to discus their financial goals and then show them the difference between the fixed and variable. I do agree that there is more money to be made on a fixed rates, but the clients need is the most important factor when choosing a mortgage.

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