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Tuesday, July 31, 2012

Canada's banks resist mortgage rate war

Canada’s banks resist mortgage rate war


Loan rate drops to as low as 2.84 per cent

Mortgage rates in Canada have dropped to as low as 2.84 per cent.

Mortgage rates in Canada have dropped to as low as 2.84 per cent.

Photograph by: Brent Foster , National Post files

MONTREAL – Five-year closed mortgage rates are descending to record lows, stirring up a rate war that Canada’s major banks appear to be avoiding.
Less than a month after the introduction of tigher rules governing insured mortgages, lenders are beginning to offer five-year fixed rates below the once unheard-of 2.99 per cent. On Thursday, True North Mortgage, which has offices across the country, including Montreal, dropped its best five-year rate to 2.89 per cent, with Xceed Mortgage Corp. advertising a 2.84 per cent rate to customers with top credit, under certain conditions.
The rates are dropping so quickly that the online financial products comparison site had to update a Thursday press release advertising an “historic low” 2.94 per cent.
“We expect 2.89 to become the norm by the end of next week,” said Dan Eisner, CEO of Calgary-based True North.
The rate wars are linked to plummeting bond yields. Usually, a drop in bond yields lowers banks’ costs, which in turn leads to a reduction in mortgage rates.
Yet for now, Canada’s major banks don’t seem to be wading in for Round 2 of the very public rate war they initiated in March.
“Interestingly, we still haven’t seen major banks publicly announce aggressive pricing,” wrote Rob McLister, editor of Canadian Mortgage Trends, in an email on Thursday. “You still have the majors advertising five-year rates like 3.94 per cent or 3.99 per cent.”
Some industry observers suggest that the banks are staying out – at least publicly – to please the federal Department of Finance, which has been faced with growing concerns over rising consumer debt and the spectre of condo overbuilding in major cities like Vancouver, Toronto and Montreal. This week, ratings agency Standard & Poor’s cut its outlook on seven Canadian banks, including Toronto-Dominion Bank, the National Bank of Canada and the Royal Bank of Canada, over unsustainable home prices that have roughly doubled in the last decade and consumer debt.

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