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  • Steve Huebl

Three big banks just slashed fixed mortgage rates: “Great news” for those facing renewal

Many mortgage lenders, including three of Canada’s Big 6 banks, are once again slashing fixed mortgage rates—a welcome sign for those facing renewal in the coming months.


As we reported last week, lenders had already started trimming rates in the wake of a nearly 40-basis-point drop in bond yields, which typically lead fixed mortgage rate pricing.


While none of the big banks made any major rate moves at that time, this week saw BMO, CIBC and RBC all deliver widespread rate reductions to their posted special rates across all mortgage terms. The rate drops averaged around 10-15 basis points, but in some cases amounted to cuts in excess of 20 bps (0.20%), according to data from MortgageLogic.news.


In particular, the recent rate cuts are likely welcome relief for the 76% of mortgage holders facing renewal in the coming 12 months who say they are anxious about the process, as revealed in Mortgage Professionals Canada’s latest consumer survey.


 While there are now 5-year-fixed high-ratio (less than 20% down payment) rates available in the 4.50%-range, those with renewals who typically require an uninsured mortgage (with a down payment of greater than 20%) can expect rates ranging from 4.79% to 4.99%.


What’s causing mortgage rates to fall?


The rate reductions follow a continued decline in Canadian bond yields, which typically lead fixed mortgage rate pricing.


Bruno Valko, Vice President of National Sales at RMG, told CMT the move largely coincides with similar movements south of the border, with both markets reacting to the latest lower-than-expected inflation results in both Canada and the U.S.


“As the 10-year [U.S.] Treasury yield goes, the 5-year Government of Canada yield follows,” he said.


Borrowers need to “fight” for a great rate at renewal


Falling mortgage rates could help soften the payment shock expected for the estimated 2.2 million mortgages that will be renewing at higher rates in the next two years.


However, just because mortgage rates are falling doesn’t mean all lenders will be offering equally low rates in their renewal letters.


If you’ve got a renewal coming up…they’re sending you a letter now that’s got a kind of high rate, so you’ve got to fight back [and argue] that rates are coming back down. They don’t just hand [out their best rates]. You’ve got to do your research.


Unfortunately, it appears many homeowners are doing less haggling at renewal, despite being faced with higher interest rates. The same MPC study cited above revealed that 41% of borrowers accepted the initial rate offered by their lender at renewal.


Just 8% of respondents said they “significantly” negotiated their rate at renewal.


However, one big factor that could be preventing many borrowers from trying to negotiate their rate is the fact that they’ve become “trapped” at their existing lender thanks to the mortgage stress test—and they know it.


The Office of the Superintendent of Financial Institutions (OSFI) applies the mortgage stress test to uninsured borrowers when switching lenders. This forces them to re-qualify at an interest rate priced two percentage points above their contract rate, limiting their options and reducing their negotiating power, especially if their financial situation has deteriorated.


Just last week, OSFI head Peter Routledge rejected renewed calls to remove the mortgage stress test from uninsured mortgage switches.


“From our perspective, the rules—from an underwriting standpoint—make sense to us. If you’re taking credit risk anew, you’re re-underwriting,” he said.

 

Steve Huebl

Canada Mortgage Trends

June 18, 2024

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