As mortgage rates begin to decline, brokers predict more cuts on the horizon

Mortgage brokers say Canadian banks have started cutting some of the rates they offer their most trusted borrowers, and they could come down even further as the spring real estate market gets into full swing.

TORONTO — Mortgage brokers say Canadian banks have started cutting some of the rates they offer their most trusted borrowers, and they could come down even further as the spring real estate market gets into full swing.

Robert McLister, the founder of RateSpy.com, says Canada’s biggest banks are now offering five-year fixed rate mortgages at an estimated 2.84 per cent to their most qualified borrowers.

That’s not far off from the lowest estimated rate RateSpy has on record, which was 2.74 per cent in April 2013.

RateSpy estimates the rate at which banks will lend to their most credit-worthy borrowers, which is much lower than the rates banks advertise on their websites.

The site revised its estimate down from 2.89 per cent on Monday, after Royal Bank (TSX:RY) cut its posted rate for five-year fixed mortgages over the weekend by 10 basis points to 4.84 per cent.

McLister says RateSpy estimates the same discretionary rate for all of the banks, as they are all competing for the most qualified borrowers and are likely to price match.

Meanwhile, variable-rate mortgages, which are determined by the banks’ prime rates, have yet to budge, even after the Bank of Canada reduced its overnight lending rate to 0.75 per cent from one per cent.

Canada’s five big banks — RBC, TD Bank (TSX:TD), CIBC (TSX:CM), Bank of Montreal (TSX:BMO) and Scotiabank (TSX:BNS) — have all left their prime rates unchanged, a move that brokers say is meant to protect their lending margins.

Five-year fixed rate mortgages generally follow the yields on five-year bonds, which have fallen dramatically over the past month.

Steve Pipkey, co-founder of Spin Mortgage, expects some of those cost savings to be passed on to consumers in the coming weeks.

“We’ll see who rolls out a spring special,” said Pipkey, who noted the spread between bond yields and fixed-rate mortgage rates is much wider right now than it has typically been in the past.

“Definitely there’s room for them, with margins right now, to roll out a spring special. Someone will, I think.”

That, in turn, will spur competing lenders to lower their fixed-rate mortgage offerings as well.

Phil Soper, president of realtor Royal LePage, says the lenders could be waiting until spring, the peak real estate season, before cutting mortgage rates.

“Announcing a discount on their mortgage rates right now would be like announcing Boxing Day prices in November,” Soper said.

McLister said the banks are likely waiting to see where bond prices settle before they start to aggressively cut their posted five-year fixed mortgage rates.

“All it takes is a couple players to say to themselves ’We’re making money hand-over-fist here, so we’re going to lower our rates a little bit and increase our market share.’ And then the others eventually follow,” McLister said.

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