Your mortgage rate may have just gone up.
One of Canada’s big banks has moved their prime rate, the key mortgage rate for variable rate mortgages, a move which will have an impact not only on new mortgages sold by the bank – but on existing mortgage customers as well. This change in the prime rate corresponds to a recent set of rule changes handed down from the Federal government which will make qualification tougher on consumers and may result in increased costs to the banks.
Why is this notable?
The decision from TD Bank to raise their prime rate on variable rate mortgages is particularly significant for three reasons.
1) TD Bank has again decoupled their prime rate from that of the Bank of Canada’s overnight lending rate
Traditionally, Canada’s largest banks raise (and lower) their prime rates in lock-step with the Bank of Canada’s overnight lending rate. Readers may remember that earlier last year, the Bank of Canada lowered their overnight lending rate twice, resulting in a cut from 1.00% to 0.50% – with the banks only passing on a savings of 0.30% to Canadians.
It is one thing for a bank not to pass on an interest cut from the Bank of Canada, it is another thing altogether for TD Bank to raise their prime rate (clawing back 0.15% from 2015’s savings) without any move from the Bank of Canada. It remains to be seen whether Canada’s other banks match the move from TD.
2) This rate increase impacts more than just new clients
Banks and lenders change their mortgage products and rates fairly frequently; however, those changes only affect new clients coming into the door. The increase in the TD Bank prime rate will impact not only new customers but existing TD Bank customers too. This mortgage rate increase will likely come as an unwelcome surprise for existing clients.
3) The unprecedented rate move may give consumers pause for concern when it comes to variable rate mortgages.
Variable rate mortgages in Canada have typically been superior to fixed rate mortgage for Canadians; however, in recent years the market has seen the spread between fixed rates and variable rates tighten. Now, Canadians have seen one of the countries biggest banks raise the prime rate on variable mortgage products presumably from regulatory pressure. The recent tightening in fixed/variable rates in combination with this move from TD Bank may create some doubt as to whether the variable rate mortgage remains to be a go-to product.
If you’re a TD Bank customer with questions about your variable rate mortgage or you’re in the market and want to know more about fixed rates vs. variable rates, fill out the form at the top of the page to speak with a MonsterMortgage.ca Mortgage Expert today!
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