It’s good news for those facing a mortgage renewal and for those looking for a new mortgage, as Canada’s banks compete for customers by cutting rates with the traditional spring home buying season kicking off.
“The spring market starts now,” mortgage analyst Ron Butler told Canadian Mortgage Trends (CMT), referring to what is typically the busiest and most competitive time of year for the mortgage market.
RBC was the first to introduce across-the-board aggressive cuts, trimming rates on most of its terms, with reductions as much as .65 percentage points, the largest among the banks.
At the same time TD Bank and BMO lowered rates two times in as many weeks.
As CMT reported, TD dropped its five-year fixed high-ratio mortgage to 3.99%, one of the lowest rates seen in months, and was followed by a number of lenders, some offering high-ratio mortgages at below 4%, usually designed for borrowers with a downpayment of less than 20%.
“All (of the big) banks have been offering high-ratio rates below 4% for the past 10 days,” Butler told CMT, adding the reasoning is simple.
"While mortgage origination volumes have rebounded from their 2023 lows, they’re still well below the highs seen during the pandemic boom,” he said. “As a result, banks are slashing rates to defend their market share in a much smaller pie.”
Equifax Canada, in a recent credit trends report, said there are signs mortgage demand is slowing again, pointing to ongoing concerns about US tariffs and a trade war, which have driven up economic uncertainties.
“So, the fight is now on to maintain their portfolios and to keep their mortgage books from shrinking,” Butler said.
Uninsured fixed mortgage rates have also been dropping, in some cases just as aggressively.
Ryan Sims, a mortgage planner, said banks are lowering uninsured rates not just to catch up with declining bond yields, but also to maintain the right mix of fixed and variable-rate mortgages on their books, reports CMT.
“Everyone seems to know the Bank of Canada is going to keep cutting,” Sims said, based on his observation of a growing shift toward variable-rate mortgages.
Sims explained more borrowers are betting on further rate cuts, so banks are adjusting their fixed-rate pricing to ensure they don’t become overly exposed to floating-rate loans, so if too many people take out variable rate mortgages, banks may have to hedge their books, which is an expensive process that they’d likely prefer to avoid.
“If the mix of fixed versus floating gets too far off kilter, then banks will have to start to hedge positions on their books, and that can be expensive,” Sims told CMT. “Insurance on hedging rate is usually most expensive when everyone wants it, and typically we would see all the banks needing it at the same time.”
When fixed rates drop below some variable rates it can be a sign of an impending recession and Sims believes banks are responding by aggressively pricing fixed rates to lock borrowers in.
“Typically, when the fixed is lower than the variable-rate mortgage, it signals a recession is coming, and thus lower fixed rates, and I think banks are trying everything they can to lock people in now at these rates,” he said.
The news of aggressive cuts by the banks is not good news for brokers, who are already recovering from a few slow years and finding themselves in a tough position, Tracy Valko of Valko Financial told CMT.
“These bank branches are getting very aggressive on not only renewals but purchases, and the spread between what the bank can offer and the broker can has become a lot larger,” said Valko, adding brokers can buy down rates to compete, but that can be costly.
“We can buy down the rates on the broker side, but then the compensation spread is less, and we’ve already been in a slower market over the last two or three years,” he said.
It’s not bad news for everyone, said Sims, adding while big banks may offer lower rates, they often fall short when it comes to service and expertise.
“In terms of competition, I love the banks dropping rates,” he said. “A bank could have a rate a lot lower than mine, but they cannot and will not provide the service, education, and overall value that I can to the client.”
Many of his clients came from bad experiences with big banks, frustrated by poor communication and a lack of personalized advice, said Sims.
“I would say 50% are clients of the Big Five who cannot even get a call or email returned, cannot get answers to questions they have, or think the person at the bank is completely unqualified and they do not trust them,” he said.
