Rates 2015 vs 2014 – It's a Lender Spring Shootout!

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By Kris Grasty
WOW! The big banks have lowered their rates! Two major lenders announced last week that they have lowered their posted rates. While this is great news for shoppers out there and advertised just in time for the Spring Rush, the reality is that bank rates have finally come to a level that has been accessible by Mortgage Brokers for quite some time now.
Over the last few weeks leading into the spring market, I have been asked numerous times how the mortgage rates today compare to last year. Let’s talk about averages year to year, as there are always time-limited specials, rate deals and promotions that are not globally available or applicable to all clients. Seeing as most people typically are only looking to compare five-year rates, the average expected rate will be used.
In 2014, Fixed rates hovered in the 2.89 – 3.09 per cent range depending on the lender, most around 2.89 per cent while variable rates were around prime -0.45 to prime -0.50 per cent. Prime was at 3.00 per cent so the effective rates were 2.50 to 2.55 per cent on average.
MARCH 2015;
Fixed rates are in the 2.59 – 2.79 per cent at present, most seeing around 2.79 per cent. High Ratio (lower down payment) clients are getting better rates due to the mortgage being insured and less risk borne by the lender.
Variable rate discounts are slightly better around prime -0.55 to prime -0.65 per cent. Prime today is lower due to the Bank of Canada’s January rate cut. Prime is now 2.85 per cent, so effective interest rates seen by most clients will be around the 2.20 per cent range.
RATES ARE IN SLIGHTLY BETTER SHAPE THIS YEAR DUE TO TWO DIFFERENT FACTORS;
The Bank of Canada’s overnight lending rate cut of 0.25 per cent this past January affects variable rates, though this time the banks decided not to match the rate cut and only reduce prime by 0.15 per cent.
The Five-Year bond yields have also come down quite a bit this year. Bond Yields are essentially the cost of funds that the banks are lending out for mortgages, and rates provided are generally 150 basis points higher to allow for profit and risk. Five-Year yields are 0.871 as of the time of this writing, in comparison to 1.748 the same day last year. This is the primary reason for the reductions seen in fixed rates. These key rate influencers do not always align like this, and we often see a greater average spread/difference between fixed/variable offerings.

In closing, though rates are better this year, impact is minimal. Rates have come down, but the overall effect qualifying may be affording a mere $3,000 increased mortgage amount using the above example. Monthly savings on payments, sure, though it is doubtful that $15 – $20 a month constitutes a major difference. It must be said that it is NOT all about rate! There are many nuances to differing lender products, restrictions or higher penalties sometimes associated with the lowest rate products. Speak to a Mortgage Broker about your plans as we can advise you more thoroughly than your bank, while helping you shop around to find the most suitable product to meet your needs.
Kris Grasty is a mortgage broker with Dominion Lending Centre’s Canadian Mortgage Experts and an active member of the MBABC. Kris maintains a strong focus on educating clients on all options. For more information visit his website at www.krisgrasty.ca or reach him at kris@smexp.com.
Original Source: METRO VANCOUVER NEW HOME GUIDE May 1 – 19, 2015