facebook
Loading...
Call Us: 416-827-2626
Get your credit score.
Are Fixed Rates Going Down?

RBC made headlines recently with the somewhat surprising move of cutting their posted fixed rate mortgages to 3.74% from 3.89%. This is despite the Bank of Canada keeping interest at 1.75% on January 9th, so the choice was RBC’s alone.

 

The big banks usually move in tandem. Does that mean we’re about to see every bank cut their fixed rate products by 0.15%? Well – it’s already happened.

For the Big 5 Banks, their posted rates are now:

Bank

5-Year Fixed Rate

BMO

3.74%

CIBC

5.34%*

RBC

3.74%

Scotia

5.44%*

TD

3.74%

*CIBC and Scotia do not post “special” rates on their websites. However, no one pays the posted rate if they have good credit and income. It is extremely likely you would be offered a rate similar to other banks at both Scotia and CIBC.

 

As you can see, BMO and TD also began openly offering fixed rates of 3.74% after the RBC announcement.

 

The Best Mortgage Rates Haven’t Changed

While the big banks have all reduced their fixed rate products, smaller banks, credit unions, and monoline lenders haven’t for most of their offerings. Over the past couple weeks, the only decrease has been seen in uninsurable purchases (that’s purchases with 20% or more down).

That change occurred before the RBC announcement, and for now, they haven’t budged. That means the best mortgage rate has been available for a while if you talked to a mortgage broker.

 

How Does The Drop Affect Me?

The most attractive feature of the fixed-rate mortgage is that your payments are always the same. If rates go up, you’re locked in at the lower rate. If rates stay the same, it doesn’t affect fixed or variable rates. It’s only when rates go down that fixed-rate mortgage holders lose out.

Now that the fixed rates have actually dropped, you may wonder what the means for you.

If you got a five-year mortgage recently at 3.89%, then you’re out of luck. Because fixed mortgages don’t change for the length of your term, the only way for you to get a lower rate is to refinance your mortgage or sell your home and get a new one. For a 0.15% decrease in your rate, the cost to break your mortgage early would far outweigh any savings you’d get.

But how much does it really cost you? Let’s assume you have a $300,000 mortgage with 25 years remaining. At 3.89%, you would pay about $54,726 in interest over the 5 years of your term. At 3.74%, that number is just $52,548. That’s $2,178 less, or $435 a year!

So it’s not a huge amount of money, but it isn’t a little bit either.

 

Will Rates Keep Going Down?

There’s always competition between lenders for mortgages, especially during the slower months. However, there is a point at which even discount brokerages can’t get lower rates because of the lenders' cost of borrowing.

Without the Bank of Canada lowering interest rates, it’s unlikely that the banks will lower their fixed rate products too much more. The next Bank of Canada interest rate announcement is on March 6th, so be sure to keep an ear to the ground to hear about the latest rate news.


Chris Chris 01/24/2019
Canadian personal finance buff and all-around writing enthusiast, Chris loves breaking down complicated money ideas to show that they're really not so complex. 
Popular Content
Sitemap Updated On August 21, 2019. Copyright 2018. All Rights Reserved. RateShop.ca

x