RBC hike a sign; rate war is over: broker

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RBC’s announced rate hike Friday is a signal the big bank is laying down its weapon of choice at least for the time being, say brokers.
 
“They're realizing that competing on rate is a losing game, and want to see how the market will react,” says Paolo Di Petta, a broker with EQRON Mortgage. “The real story here is that RBC's strategy seems to be more HELOC-focused now, anyway. They've been aggressively marketing their prime + 0.5 product for a while now.”
 
RBC – like TD Bank – was among the first of the major banks to raise fixed rates since bond prices took a nosedive last month. The biggest increase will be applied to RBC’s five-year closed mortgage, which will rise from 3.09 to 3.29 per cent. 
 
BMO, which has historically led the charge in lowering the rate is now proffering a more-modest 3.09 per cent on a five-year fixed.
 
But for Di Petta, it is a simple numbers game for RBC, and home equity lines of credit are the best weapon the big bank has to wield right now.
 
“HELOCs are a better sell for them – less maintenance, no renewals – they essentially cut the labour cost and broker competition out of the picture,” he told MortgageBrokerNews.ca. “And if there's equity in the HELOC – it's easier to hide delinquencies/defaults when borrowers can borrow to make their monthly interest payment.”
 
The one-year closed mortgage has increased 0.14 of a percentage point to 3.14 percent, with increases of one-tenth of a point on two-, three- and four-year mortgages.
 
Funding costs, which are tied largely to the rate on five-year bonds, have increased. As the banks use the bond market to fund their commercial lending activities, other lenders are expected to follow Royal Bank’s lead.
 
Kerri Lynn McAllister, the chief marketing officer at RateHub, suggests some lenders may continue to opt for volume over margins in the face of an overall slowing mortgage market.
 
“We are not surprised RBC raised their mortgage rates on the heels of a recent spike in bond yields – this follows the historical trend,” says McAllister. “However, we cannot assert all other lenders will follow, given that overall mortgage volumes are slowing in Canada. Some lenders may choose to sacrifice margin for volume. We will see how it plays out.”
 
But for Di Petta, the HELOCs – along with the new hybrid products already offered by the big banks – will allow lenders like RBC greater control over a client while limiting the exposure.
 
“Traditional mortgage products aren't going away any time soon, but I 'm expecting banks to continue pushing HELOC and hybrid (all-in-one) products,” he says, “especially since collateral charges give them much more control over the client, and gives the banks more opportunities to limit their exposure.”
 
The rate hike must come as a relief to Finance Minister Jim Flaherty, who appeared to chastise BMO for lowering its posted five-year to 2.99 per cent back in March, and going so far as to have his department contact Manulife when that lender lowered the rate to 2.89 per cent.
 
Still, brokers stand to benefit from the rate hikes at the big banks, say brokers, but only for as long as monolines can keep from following those large institutions. Conceivably, it also takes some of the pressure off of brokers to buy down rate, allowing them to hang onto more of their commission.
 
  • Lawrence Kobescak on 2013-06-10 8:14:37 AM

    The 5 year bond rate has risen 50bps in the last 45 days. That's since 2.89% was offered. RBC is only responding to the increased cost of borrowing. All lenders will follow suit. The reality is this story is off. BMO has raised their rates 10bps from 2.99% to 3.09% while the rising bond rate has eaten away at their profit. BMO and others continue to have low rates while their margin shrinks. This indicates to me they are still being very aggressive as their primary concern seems to be a lower rate versus a higher profit.

    http://www.ontariomortgagesuperstore.com/where-are-mortgage-rates-heading

  • Jake on 2013-06-10 8:17:57 AM

    Rates still available sub 3% at RBC thru brokers though, so it's all a matter of how (little) they want to get paid.

  • Walid on 2013-06-10 9:55:56 AM

    I don't know about that, once you set foot on a branch (BMO comes to mind) they will give you rates and conditions even brokers can't compete with.

  • Gerry on 2013-06-10 10:37:11 AM

    Concur with Lawrence's comments, don't forget BMO's 'special' five year mortgage has very restrictive prepayment privileges and is locked in to BMO for five years unless client sells property. Can't refinance and go elsewhere. Have to read the fine print.
    Shrinking mortgage market, banks have lots of money want to get it placed, so choice is lower margins to get market share.

  • Ottawa Broker on 2013-06-10 3:24:52 PM

    @ Walid, what do you mean by "not even a broker can compete with"???
    Let me guess, you are a BMO mortgage "specialist"? I have never lost a deal to a bank, if I wanted to keep it. They eventually resort to slandering the broker when the rate gets below their comfort margin, which makes them look bad. It just comes down to how much a broker wants to make on whether or not a rate is matched when the client gets a quote from their branch.

  • Walid on 2013-06-10 5:46:39 PM

    BMO still offers 2.79 in branch 5 years fixed

  • Gerry on 2013-06-10 8:10:57 PM

    2.79% .oops... it's gone! Tuesday, new rates. Let's not forget the restrictive conditions on the BMO mortgage.

  • John Dearin on 2013-06-11 6:36:40 AM

    It's almost a loss leader to the banks. Yes they are still making a buck, but they go back to the shareholders showing a much bigger client base, and better yet, more loans and credit cards pushed on the clients...that is where the money is, and the profits. Big interest rates

  • Walid on 2013-06-11 8:03:40 AM

    @Ottawa Broker, am a broker not a mortgage specialist. I don't like cutting commission (maybe I should sometimes). I agree that it depends on how much you want to earn.

  • Jake on 2013-06-11 8:13:26 AM

    #yaaawn

    You guys really think most borrowers care about the scary terms & conditions from BMO? They don't. Rate still trumps almost everything (at least in my experience).

  • Lior, Mortgage Edge on 2013-06-11 8:50:26 AM

    I agree with Paolo on the HELOC part. It can be set up with a fixed component and because it's registered as collateral it wraps up the secured and unsecured debt. If the homeowner owes the bank money on a credit credit or personal LOC, they can offset the balance by putting the home into power-of-sale. Retention tool + protection from losses = winner!

  • Marie on 2013-06-11 9:07:22 AM

    RBC is only posting 3.29. the mortgage specialists now have 2.99% instead of 2.79%
    no different than what we have in the broker world.

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