Have you ever noticed how fast gas stations will increase the price of gas, sometimes it seems like as you are listening to the news on your car radio that the price of oil has gone up, the gas signs change all around you! The worst part is when Oil goes down, they are very slow to lower their prices.
Banks are the same! When bond yields go up (the yield is on a Government of Canada Bond see this ) Bank’s are quick to increase their posted & discounted rates. Since August 1st the yield on Government of Canada 5 year bonds has dropped from 2.045 to today’s 1.579:
This has occurred with no change in posted rates at the banks, though their discounted rates have slowly come down. In the past the discounted rate was all that mattered to most of us, but with all high ratio (read less than 20% down payment) variable rate mortgages now you must qualify for the mortgage at the posted rate (currently 5.39%). Lenders may use the discounted rate for high ratio fixed rate mortgage qualifications (3 years & longer), so for example, 3.59% for a 5 year fixed at Scotiabank. Lenders have been complaining that they are not making as much profit on variable rate mortgages, and now the Banks are taking their time decreasing the posted rates…think these things are linked some how? I do!
Hopefully the Banks stop this and drop their fixed rates soon.
Until next time, get a plan!
Michael Anthony Lloyd