Canada’s biggest bank has dropped one of its key mortgage rates, a signal that lower rates may become more widespread.
RBC‘s advertised rate for a five-year fixed mortgage dropped from 3.89 per cent to 3.74 per cent on Wednesday.
James Laird, co-founder of comparison website Ratehub Inc. and president of CanWise Financial mortgage brokerage, said the same five-year rate is “widely available” from TD as of last Thursday. The company is not advertising the offer on its website, however.
Laird said with two down, the other big five banks — CIBC, BMO and Scotiabank — are expected to follow suit.
“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,” he explained.
While the 0.15 percentage point change may seem small, it could mean a lot to borrowers.
Based on a $400,000 home price with a 20 per cent down payment, the lower rate would mean savings of about $26 per month or $2,285 over five years, according to Robert McLister, the founder of rate comparison website RateSpy.com.
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According to Ratehub, the comparison for someone taking out an $800,000 mortgage is a savings of $65 per month, or $780 per year or $3,900 over five years.
Canada’s main financial institutions were widely expected to lower their five-year fixed rates because of declines in the government bond market.
While variable mortgage rates are generally linked to the Bank of Canada benchmark interest rate — currently 1.75 per cent — fixed mortgage rates are tied to bond yields.
“The rates dropped enough in the beginning of December where they could have cut rates this much then, but they held on and that’s obviously a play to maximize margins,” McLister said.
Laird said that in the wake of December’s decline in the five-year bond market, which saw yields fall below two per cent, the banks are trying to figure out what the new normal is going to be.
“I guess they’re signalling to us that the drop that occurred in December is going to stay for a period of time,” Laird said.
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At the same time it lowered the fixed rate, RBC has upped its variable mortgage rate by 0.25 percentage points, according to McLister.
A spokesperson for RBC said in a statement that a number of factors drive its rates, including wholesale rates the bank receives, increasing regulatory costs and market volatility.
“Rate is just one aspect of shopping for a mortgage, and we encourage clients to think about all aspects of their mortgage to make sure it suits their needs,” the spokesperson said.
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Laird said competition in the mortgage industry could heat up, as it typically does ahead of the spring homebuying season.
“March, April, May is the big mortgage season and that’s when all the lenders kind of put their best foot forward as far as pricing goes and promotions go. That’s when they get really aggressive because that’s when they do significant numbers in order to make their targets for the year,” he said.