Why you should care about the banks’ posted rates on mortgages
Garry Marr | February 9, 2015 8:55 AM ET
Chris Schwarz/Postmedia NewsAbout a week ago, Bank of Nova Scotia lowered its posted rate on a five-year fixed rate mortgage to 4.49% from 4.79%.
There are not too many Canadians who get tricked into accepting the posted rate on a mortgage anymore but that doesn’t mean no one should care when the banks drop their published rates.
About a week ago, Bank of Nova Scotia lowered its posted rate on a five-year fixed rate mortgage to 4.49% from 4.79%, which doesn’t sound like much of a deal when compared to the discounted rate of 2.84% for the same product, according to http://www.ratespy.com The other banks have not matched the posted rate from Scotiabank — which is important because if they do it’s going to get easier for consumers to borrow even more money.
What’s key about the posted rate is that it is used by the Bank of Canada to create what is called the qualifying rate. The prime rate is 2.85% today, and you borrow at even less, but if your mortgage is for a term under five years, you qualify based on the posted rate — meaning you must borrow based on a higher monthly payment which ultimately means you can take on less debt.
Household debt continues to be cited as worrisome by many who watch the economy. The McKinsey Global Institute last week pointed to Canadian consumer debt as unsustainable. Statistics Canada said debt reached a record 162.6% of disposable household income in the third quarter.
Rob McLister, founder of ratespy.com, says that every Wednesday the Bank of Canada surveys the big six banks, and posts the qualifying rate based on the five-year mortgage posted rate. One bank isn’t enough to move the rate.
“If the posted rate went down materially, 30 basis points, like Scotia just did, it will have a meaningful effect for some people on the bubble,” he says, noting it’s been almost nine months since the qualifying rate moved. “In my opinion, Scotia dropped because they want to seem more competitive, even though most people know it means nothing.”
But it does affect people qualifying for loans based on prime, which according to the Canadian Associated of Accredited Mortgage Professionals, is usually about 25% of the population — but it’s shot up as high as 30% when there is a large gap between prime and long-term rates.