Talk of lower mortgage rates may be premature

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The Bank of Canada lowers interest rates and mortgages get cheaper right? Not necessarily. Yesterday customers of TD Bank were told that there would be no rate cut for now as the bank bases those decisions on “a number of factors”. The other major banks have said that no decision has been made yet but that they are assessing the situation. Rates are already low of course and with banks under increasing pressure from regulation and the squeeze on profits from the low oil price they may not be too keen to pass on savings unless they have to. Experts say that the market will decide and certainly if one lender breaks ranks and cuts the cost of its home loans others will likely follow. Historically the banks have followed a BoC rate change but then the current economic conditions are not typical.
  • Gary on 2015-01-23 8:26:13 AM

    If Prime is defined by the Bank of Canada rate, why don't they automatically drop?

  • John on 2015-01-23 9:43:00 AM

    If the banks don't drop the rates, it defeats the purpose of lower the Bank of Canada rate. The Governor of the Bank of Canada did not lower the bank rate so the banks can stuff there pockets.

  • Mike on 2015-01-23 9:51:39 AM

    I m sure if BOC raised rate banks will immediately raised their rates. Is there a law in this country to protect consumers?

  • Ron Butler on 2015-01-23 10:39:34 AM

    Mike hit the key "protest" button: if the BOC over night rate had gone up ALL THE BANKS WOULD HAVE RAISED THE NEXT DAY.

    Tell your clients to call their branches and ask the same question of the branch manager: when will my prime rate product rate go down? Because it sure as heck would have gone up if the BOC rate went up instead of down. Let's get our clients calling and emailing their banks: just be fair!!

  • Gary on 2015-01-23 10:52:18 AM

    For many years the traditional spread between the BOC prime and that of the banks was 1.75%. If you recall, when the crisis hit and the BOC dropped a full point all at once, the banks only dropped .75%, thus increasing their spread to 2%. They saw an opportunity to line their pockets then, and I'm afraid the same line of thinking may happen here, which will give them a 2.25% spread. As soon as the BOC raises their rate, the banks will raise their rates within seconds of the announcement. And they (the banks) claim they want to help consumers...I guess they do...they want to help relieve consumers of the additional cash they may have...just like the Ontario gov't---consumers finally get a break at the pumps, and the gov't wants to implement a carbon tax at the pumps that will eliminate the need for consumers to have to decide how to best utilize those savings.

  • Hamed on 2015-01-23 11:07:36 AM

    Very funny. The banks don't like to lesson to the central bank. What is the point of regulations. They don't have a choice they have to say yes either like it or not.

  • Jennifer on 2015-01-23 11:33:18 AM

    The BoC announcement was a shock to everyone and the banks also have promises to investors. All factors need to be taken into consideration before the Prime rate can be decreased. This decrease wasn't meant for consumers it was due to the oil prices decreasing.

    Also I don't believe any branch managers would know why the Prime Rate isn't decreasing as this just comes from the head office.

  • Rayanne Soderberg on 2015-01-23 11:34:58 AM

    On checking the Scotia Mortgage Authority site, I noticed that they have dropped their rates 0.05%. What makes me wonder is why credit card rates are at usury rates and customers don't complain or complain louder! It would be a lot easier to qualify clients struggling to purchase a home if they were able to pay more onto credit card principle and keep their debt manageable.

  • Ron Butler on 2015-01-23 11:41:53 AM

    Jennifer, you miss the central argument of "fairness" if the BOC had raised the rate the banks would, all have raised Prime in 24 hours. You also don't understand the concept of public awareness, people need to pressure the banks in all possible ways and that includes making the branch staff wish to see Prime rate go down. Brian Porter of Scotia said something very interesting this morning when asked about the rate cut and margin compression he said that they were still studying the cut and that they had learned how to manage lower rate structures and they would continue to manage it.

  • Michelle on 2015-01-23 11:44:49 AM

    As someone who has a variable mortgage herself, it would be nice to get the lower rate. As a mortgage professional, I hope Prime stays put and doesn't move for now. There are markets that are too hot and the rate drop will only increase those with money to bid higher on purchases and those who are borderline with downpayment get pushed out of the market. A quarter point up or down should not break the household budget and if it does, they should carefully re-consider homeownership affordability.

  • Martha on 2015-01-23 1:51:45 PM

    My advise. People, do not borrow money from Canada Banks if you do not have to, wait. Then they will be forced to lower prime rate.

  • zooMortgage on 2015-01-23 9:55:44 PM

    They way i see it is the banks must drop the prime to 2.75%. Just look at it this way, anyone with a variable rate mortgage is basically gambling on rates to stay the same or go down. In this case the banks lost and the consumer should benefit. Its like betting a football game you take a team to win and they win you get paid, if they loose well you loose. You see in this case the consumer has won on the variable rate and the lines of credit and they don't want to pay. Look at it like this 500,000 mortgage at -1/4% is a savings of 104.00 a month toward your principal and if rates stay like this for a year the compounding effect is even greater.
    So the way i see it they will pay.

  • Derek Austin on 2015-01-24 2:39:22 AM

    I personally can't understand the drop at this time. Its suppose to help off set the effect of low Oil prices so if reduced rates are not passed on to the consumer how does it help, BoC should have though of this. The other issue is that they have been talking about a heated real estate market so aren't reduced Oil prices going to cool a heated market ? Once again, (2006 and 2007 CMHC and government changed the rules etc which made the following problems worst ) they are making adjustment to effect the market again , when other factors are also effecting the market . Also why didn't anyone tell us about the possibility (Oil Prices )that this could happen , they also missed the bust of 2008 , so really what do they Know ?

  • Oikos on 2015-01-24 11:13:18 AM

    I wouldn't worry about the rate. That becomes completely negligible. House prices needs to fall to what their real value are according to international accounting standards. Million dollar homes have to go back to $450K, $800K down to $300K interest have to rise to support the dollar. End of bullshit! The socialist revolution has carried the day. End of oil price manipulation and government taxation. Small businesses must resurface, government must shrink and so does the taxes and the environment must flourish. You who bought in to real estate within past 3 years got nothing and will be left standing with your paper worth only.

  • Andrea on 2015-01-26 11:49:15 AM

    Interesting comments from everyone.... & all make a good point. Oikos, we will never see the $million dollar homes at $450k, that is dreaming in technicolor, from someone who's been in the industry since '88.... T.O. is now considered an "international" city.. & just as others, say, NY City, you will not see a price adjustment to that extreme! Or at least I would be willing to bet on that... anyone want to wager? And an $800k home down to $300k? Silliness..... would be nice if we could turn the clock back & purchase at those prices but it just will not happen... As a realtor I remember when the first home in Markham/Unionville sold for $750k and we were all in awe!!..... the bubble is not that big, home values should remain relatively static, there may be an adjustment but certainly not to that extreme...
    Just my opinion after 27 years in the industry.

  • Andrea on 2015-01-26 11:50:47 AM

    Interesting comments from everyone.... & all make a good point. Oikos, we will never see the $million dollar homes at $450k, that is dreaming in technicolor, from someone who's been in the industry since '88.... T.O. is now considered an "international" city.. & just as others, say, NY City, you will not see a price adjustment to that extreme! Or at least I would be willing to bet on that... anyone want to wager? And an $800k home down to $300k? Silliness..... would be nice if we could turn the clock back & purchase at those prices but it just will not happen... As a realtor I remember when the first home in Markham/Unionville sold for $750k and we were all in awe!!..... the bubble is not that big, home values should remain relatively static, there may be an adjustment but certainly not to that extreme...
    Just my opinion after 27 years in the industry.

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