Market Commentary

It’s the kind of domino effect brokers like, with one lender moving to lower the rate on its five-year fixed followed by another and another and …

“I expect the lenders in the broker channel to follow suit as well,” said Gautam Jain, a mortgage agent with Argentum Mortgage and Finance as well as a certified financial planner. “It’s simple economics: once one lender moves, they all do.”

The country’s largest bank, RBC, moved Tuesday afternoon to drop the posted rate for its residential five-year fixed mortgage by 10 basis points to 5.59 per cent. It did the same for its special five-year closed, which fell to 4.44 per cent

 Another major player in the mortgage space, TD rushed to duplicate the adjustment, dropping it five-year closed and special five-year closed by the same 10 basis points, to 5.59 per cent and 4.34 per cent, respectively. Scotiabank did the same, bringing its own five-year closed in line with RBC and TD. It also dropped its discounted five-year to 4.39. National Bank and Laurentina Bank also lowered their five-year closed fixed-rates to 5.59 per cent, effective May 20.

Other competitors, both the commercial banks and monocline lenders focused on prime, insured loans, are expected to follow in the next 24 to 48 hours. The same herd mentality was evident in the last collective move by lenders to raise rates on their fixed mortgages last month, by 20 to 35 basis points. As it was in April, shrinking bond yields likely precipitated the move.

“Five-year GICs have come down,” said Jain, “so the lenders are passing on the saving to the consumer and also want to encourage more buyers to enter the market, which has been slow in some areas. It hopefully should encourage some people sitting on the fence to buy now.”

Lenders are likely hoping for the same result, although any delay in adopting the lower rates may cost them as brokers and consumers migrate to institutions offering the lowest rates in addition to broker discounts.

The rate drop actually run counter to what most analysts had predicted for fixed mortgages in the near-term. As late as last month, Canadian banks were forecasting as much as a 100-basis point increase in 5-year bond yields over the next two years, making for a corresponding hike in fixed-rates mortgages.

That could still happen, with brokers across the country readying to contact clients ambivalent about whether to convert variable-rate mortgages to fixed, effectively giving them a heads-up.

Source - Mortgage Brokernews.ca