TD Bank is offering an aggressively discounted variable mortgage rate of 2.45%—which is 1.15% below its prime—but are there better deals out there?
“If it’s a high-ratio mortgage, absolutely,” said Robert Mogensen, a broker with The Mortgage Advantage. “Most monolines are offering up to a 95 basis point discount right now, and brokers are able to buy rates down where necessary, so we can beat those deals. Brokers do have access to TD, so if we wanted that rate our clients would have access to that, but some monolines offer bigger opportunities with bigger buy downs than others, and some on a high-ratio deal would beat that rate.”
The Big Six are competing on discounted deals and TD—whose offer runs until the end of the month—is following BMO’s lead by offering this deal on new and renewed mortgages. But while BMO’s discount falls short of TD’s by 15 basis points, don’t be fooled.
“Their prime is 3.60% and their discount is 1.15%, making a net of 2.45%, which is exactly what BMO did, so they matched BMO, they didn’t beat them,” said Mogensen.
With interest rates rising and property values waning, Daniel Johanis, a DLC Mortgage Centre broker, warns of TD’s trigger point clause, which the bank can initiate on variable-rate mortgages if home equity slides to 20% or less.
“They have the option of calling in payment in 30 days, where you make a lump sum payment to get into a positive amortization position with them,” he said. “The concern here is we’re in a situation where rates are going up and the market is slowing down a little bit, so we have these two variables that could possibly have this clause triggered. When you compare that to some of the monoline lenders, monolines don’t do this. The increased payments reflect the new payments, so you’re not in a negative amortization situation.”
For years now, houses have appreciated—in some cities, astronomically—while interest rates have decreased, so trigger point clauses were of no concern.
“Demand was outstripping supply and everybody was dropping rates,” said Johanis. “It was a race to the bottom, as far as rates were concerned. Now, we’re not seeing demand in the marketplace and appraisals are coming back lower than they were a year ago, so I’d be cautious when explaining the risks and benefits of any mortgage.”
But having access to TD’s discounted variable product is a welcome option for any broker, he added.
“The fact that we have access to a product like this in the broker channel helps with our business because people will be inquiring about this product.”
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