The Royal Bank of Canada recently announced they would be cutting their interest rate for five-year fixed-term mortgages. This move has been widely anticipated and other major banks are expected to follow.
RBC lowered its featured five-year mortgage rate from 3.89 per cent down to 3.74 per cent. The other “Big Five” banks in Canada, Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC) and Toronto-Dominion Bank (TD) have not yet matched the yet, but experts believe that they will follow soon.
“All five banks are very influential but RBC is the most, they are the largest bank in the country and they are the largest mortgage lender in the country so when they move, it really does, usually force the other four to match,” said Ratehub founder James Laird.
Experts say that the big banks are actually behind. Alternative lenders that compete with the big banks began lowering rates weeks ago, giving them a slight advantage in the market. Experts anticipate that major banks will settle their feature five-year fixed rates at about 3.64 per cent.
Some of the other major banks have already lowered their internal discretionary rates on the five-year fixed terms for preferred clients. However, RBC is the only big bank to lower its publicly posted rate. This move comes after the yield on five-year Government of Canada bonds has fallen. The five-year bond yields fell from a recent high of 2.46 per cent to 1.93 per cent.
Fixed mortgage rates are getting cheaper, but variable-rate mortgages have been getting more expensive. This has narrowed the gap between the two. The typical spread between the five-year fixed rate and the variable rate has declined from 104 basis points to 35 basis points. This is making variable mortgages less attractive to real estate buyers. This is good news for the big banks, and they’re happy to shift more borrowers onto the fixed- rate mortgages, as they are more profitable for the banks under the current conditions.
These lowered rates will positively impact everyone, including borrowers, real estate investors, and the banks. Toronto’s real estate market has slowed down recently, hitting the annual “January slump”, but is expected to bounce back in Spring. While the market has cooled, the city’s real estate is still extremely valuable and in high demand.