Category: Mortgage Information

This article appeared on Reuters and was written by Cameron French on February 9, 2012.

Canada’s big banks, which entered a mini-price war on mortgages last month, are now raising their rates ahead of schedule, due to higher costs that make the cheap mortgages more expensive to fund.

Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO), which had offered a record-low rate of 2.99 percent on a four-year mortgage, said on Wednesday they were cancelling the offer, well ahead of the original expiry date of February 29th.

TD’s lowest rate on a four-year mortgage is now 3.39 percent, it said.

Bank of Nova Scotia (BNS.TO) followed suit on Thursday, while a Canadian Imperial Bank of Commerce (CM.TO) spokesman said the bank would likely adjust rates on Friday.

The moves underscore how nervous the banks have become about narrow margins in their consumer lending portfolios. Bond yields have begun to inch higher from historically low levels in December. Banks typically issue bonds to fund their mortgage lending.

“Our long term funding costs have gone up considerably due to global economic concerns, and while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” said RBC spokesman Matt Gierasimczuk.

Analysts say the banks will struggle to increase earnings this year due to low rates, which narrow the margins on loans.

While they can partially compensate for that by raising lending volumes, the Bank of Canada and the federal Finance Department have been warning Canadians to lower their already-high debt levels.

Bank of Montreal (BMO.TO) kicked off the price war when it announced a two-week offer of a record-low 2.99 percent 5-year mortgage in mid-January.

The move to cut rates drew criticism as it came just days after bank CEOs had warned of the possibility of a housing bubble in certain regions across the country.

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This article appeared on CBC.ca on January 13th, 2012 and was written by Pete Evans.

A strong international demand for bonds from Canada’s biggest banks is trickling through the system and pushing mortgage rates to record lows at the consumer level.

The Bank of Montreal moved its five-year fixed mortgage rate to 2.99 per cent late Thursday — the lowest posted rate from a major bank in Canadian history.

BMO announced the rate cut late on Thursday and TD followed suit by lowering their four-year fixed rate to 2.99 per cent on Friday afternoon.

BMO’s offer, which ends Jan. 25, states that lump sum payments are limited to 10 per cent of the principal each year. The mortgage is also based on a 25-year amortization period. TD’s offer is open until Feb. 29, 2012. It’s also for a four-year term, much less common than the standard five-year.

Other banks are expected to follow suit. On Wednesday, Toronto-Dominion Bank reduced its posted six-year rate 132 basis points to 3.79 per cent and lowered the posted seven-year fixed rate 91 basis points to 3.99 per cent.
Access to capital

Borrowers can often negotiate a better rate from a bank based on their credit history, but the posted rate at a bank is seen as the benchmark for its mortgage offerings. The five-year rate is by far the most common term for a first-time homebuyer.

Lower mortgage rates are the results of a broader trend in which international bond investors are gobbling up Canadian offerings at record levels because they’re generally perceived as being safer than bonds from other countries.

“It’s not surprising given that mortgage rate declines have actually been lagging behind falling bond yields,” Queens University real estate expert John Andrew said. “[It’s] driven by global economic uncertainty.”

Earlier this month, BMO was able to sell $1.5 billion worth of five-year bonds at a rate of 2.544 per cent. Contrast that with the government of Italy, for example, which sold an offering of bonds with a 4.83 per cent yield on Friday.

Essentially, the bond market considers BMO a better bet than Italy. A lower yield is a sign investors have more confidence in that lender’s ability to live up to the terms of the loan.

“Right now Canada is a function of what’s happening in the global environment,” Mark Kerzner of The Mortgage Group said. “And mortgage consumers are able to benefit from the noise in the rest of the world.”

As Europe’s debt crisis unfolds, investors are fleeing for safety. Canada is seen as a beacon in the financial world, so bond offerings from Canada’s biggest lenders are in strong demand. Cheaper borrowing for the banks has in turn allowed them to seek new customers by cutting their consumer rates.

“There’s a risk premium,” said Nick Mitskopoulos, president of mortgage broker Verico Mortgage For Less in Toronto. “The three-to-five year money is cheaper [but] their short term costs have gone up.”

“Their cost of capital is going up for the short term, but not for the long term.”

Mitskopoulos said other lenders will be hard-pressed to match BMO’s rate, although most will likely lower their rates a bit to compete. At that level, he suggests, BMO might be at a break-even level and is hoping to make gains from new customers through lines of credit.

Fixed-rate mortgages are closely tied to what’s happening in the bond market, as that’s how the banks finance their lending. Variable rate mortgages are more closely linked to the Bank of Canada’s rate.

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