Feb 9, 2012, Banks pull back on low rate mortgages

Grant Robertson — BANKING REPORTER

Canada’s major banks pulled back on historic-low mortgage offers this week by raising their posted rates. But that doesn’t mean the deep discounting seen over the last month has necessarily ended.

Several of the banks are still unofficially offering deep discounts in the mortgage market through brokers and in-branch negotiations, while some credit unions say they are holding firm on rate offers brought in last month to compete with the banks.

Most of the country’s biggest banks began offering four-year or five-year fixed-rate mortgages at 2.99 per cent in mid-January after Bank of Montreal (BMO-T58.21-0.41-0.70%) lowered its rates in an unusual two-week offer designed to kick-start new mortgages in a slow period for sales.

But soon after BMO’s two-week offer expired, rival banks began pulling their offers. Royal Bank of Canada (RY-T53.85-0.02-0.04%) and Toronto-Dominion Bank (TD-T79.00-0.15-0.19%) announced this week they were halting their offers of 2.99 per cent on 30-year amortizations, which they planned to offer until the end of the month.

Canadian Imperial Bank of Commerce (CM-T76.88-0.18-0.23%) followed suit on Thursday, announcing it was also raising its posted rate for a four-year fixed-rate mortgage to 3.39 per cent, up from 2.99 per cent The banks say the increases in posted rates are due to increased funding costs as bond yields start to climb. However, despite the movement in posted rates, the discounting has continued – albeit unofficially. Three mortgage brokers who detailed the offerings in the market in different parts of the country said special discount rates remain on offer, despite the formal announcements from the banks that those rates have been scrapped.

Meanwhile, some credit unions are also not budging. Dave Schurman, executive vice-president of FirstOntario Credit Union, which operates in southern Ontario, said his financial institution has no plans to halt its special offer early, as the banks did.

FirstOntario, which has about 85,000 members and $2.9-billion in funds under management, is one of a few credit unions that announced fixed-rate, four-year mortgages of 2.98 per cent to compete with the banks.

“We said we would keep it until the end of February, and we’re not going to pull that back like the banks did,” Mr. Schurman said. “I can’t see that much changing.”

Mr. Schurman added the market remains tight in terms of banks and credit unions battling for new mortgages. “It’s pretty competitive,” he said in an interview.

Ottawa has been trying to caution consumers against borrowing too much in a low interest rate environment, worried that household debt levels across the country are rising too quickly. Sources have indicated officials in Ottawa were not happy with the price war the banks had been waging on mortgages.

However, brokers said a variety of banks, including TD, Royal and BMO, continue to entertain new loans at the discounted rate, even though the posted rates have been increased. Many of those talks depends on the eligibility of the borrower, one broker added.

Though January and February is traditionally a slow time for mortgage sales, banks and credit unions are gearing up for the busy spring season, which begins in March and usually lasts until May or June.

Canada’s big banks will begin reporting earnings data for the first quarter, which ended Jan. 31, at the end of this month.

Though the numbers won’t show the full impact of the recent price battle between the lenders, analysts will be keeping a close eye on mortgage originations and refinancing at each lender. The banks haven’t disclosed yet whether they have seen an increase in business as a result of the special rates.