As has been pointed out by both Canadian Capitalist and Michael James the Bank of Canada’s 1/2 point rate drop has not been reflected by the major banks yet, in terms of Mortgage rates (especially in longer term mortgages). Short term mortgages and credit vehicles that are typically based on the Prime interest rate, do reflect this dropping, but longer terms (greater than 6 months) certainly do not reflect this drop.
Why are Mortgage Rates not Lower? Darn good question. Currently the TD Bank’s prime rate is 4.75%, and that is also what they are charging on their variable rate 6-month mortgage. However, after that the rates start climbing to a maximum of 7.75% for a ten-year fixed rate mortgage (more than twice the current Bank of Canada rate).
Remember that all rates posted on these sites are negotiable in some fashion or another, and here we come to the real core of this post.
If the bank says, “We don’t negotiate Mortgage rates”, simply leave and call a Mortgage Broker, and you might be surprised that the Broker can get a cheaper rate from the exact same bank (and remember, the Broker makes money on this too).
Banks Need You
Remember, if you are a good credit risk and you want to truss yourself up with a long-term debt like a Mortgage, the Banks want you! They want your business and your money passing through them. They want you even more if you carry balances on your Credit Cards, but let’s not go to that subject today. Remember, the bank wants your business, and keep that in mind.
When you are talking to a bank about Mortgage rates and such, it is an excellent time to discuss getting Free Banking too. This corporation wants your business, now is the time to be asking (or demanding) for the best deal you can get. Be prepared to talk to a few banks, and also be prepared to be promiscuous with that information, tell the banks the deals other banks are offering you, and see if they will match the deal or even make a better deal (I don’t suggest lying, mostly because I am a lousy bluffer or liar, being dishonest isn’t the way to go).
Let me be honest: I am awful at negotiating, but I am learning that it is an important skill to develop, so I am working on it. It is all a game for me, and getting the best deal I can is the game’s goal. A really good tactic is to get friends or family to tell you what deal they got and see if you can beat that deal. You may not get that deal, but maybe you’ll get a better deal, you never know, until you negotiate.
The only thing I can tell you for sure is that if you do not try to negotiate, you will not get a good deal from the bank. Strangely, the opposite of this is not true (i.e. if you negotiate, you will get the best deal), but, if you don’t negotiate, I promise you will not get a good deal (unless your father or mother or a relative owns the bank or works at the bank, but then you are playing the game by using connections, so go for it).
Traciatim, you are making the assumption that the banks hand out posted rates all day long. In fact, most banks are offering their clients rates in the 5.79% to compete with brokers. TD Canada Trusts broker rate is even lower, at 5.59%. Very rarely does anybody with good credit walk into a bank and get posted rate, and given the discounts the banks have been following suit with the bond rates.
Nolan, bond rates have been dropping though. Back last August the bond rates for 5 year bonds were around 4.52% and posted mortgage rates at 7.42% a spread of 2.9%.
In mid march the 5 year bonds were pulling in 2.89%, so one would assume the 5 year posted mortgage rates would be around 5.79? Nope, 7.29% . . . Mucho Profito el Banko.
Adjustable rates are based on the Bank of Canada Rate. Fixed Rates are based on the bond market. Therefore a decrease in the Bank of Canada rate does not mean fixed rate will change. Therefore the banks have followed suit by lowering their prime rates, however the adjustment has nothing to do with the lowering of their other rates.
All of the lenders will follow suit soon.
I wanted to share my experience with my mortgage and the banks. Years ago I bought my first home. The realtor set me up with a mortgage broker and I think I got a good rate. Not that sure because my girl friend and I were just happy were were moving from the apartment to our first home.
Five years later it was time to renew. We went into the bank, which will remain nameless and were given a sheet of posted rates. I asked if there is any flexibility and she said no. I told her I was going to shop around, but being a good guy I told her after I was done my shopping I would return.
The next day I was offered a rate a full 1.5% lower. I went home, did the math and I was shocked at the difference (I was young). I gave the new institution my business.
I received a follow up phone call from the original bank asking why I moved. I asked why I was only offered the posted rate and I was told that was their policy.
Banks want to make money and if you do not negotiate properly you will end up wasting thousands of dollars.
Ten years later I have become a mortgage broker and I get to help out my family and friends.
I am not so sure they will follow suit. My guess is these ludicrously low rates are an aberation for now, and we may not have them for long.