Can someone explain Prime rate for mortgages
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Location: carl sagan's universe
Posted on: 08-10-08 15:02:17
Quote:
Originally posted by investpro
Hi dudes...
B of C lowers, raises or holds steady the rate at which it lends money to the banks sometimes referred to its key interest rate or overnight lending rate based theoretically on where it sees the economic health of the economy of the country and to direct it, the economy, where it (the govt) wishes it (the economy) to go
See recent link where B of C has held the rate steady today at 3%.
http://www.globeinvestor.com/servlet/story/RTGAM.20080903.wbankrate0903/GIStory/
Usually the prime rate of banks - which is a benchmark to guage at what rate they should lend money to their clients - is prime+1.75% in Canada.
So currently the prime rate for the banks is 4.75%.
Banks are not mandated to follow changes in their rates according to rate announcements by B of C, however competition usually leads to this.
If you wish to read an article on this google
'banks not to follow bank of canada's rate cuts'
and several sites will show up.In short:
In between, earlier on this year, when B of C starting aggressively cutting its key rates from 4.50% to match cuts in the US, there was talk that banks may not follow suit, but if one major bank did it, others had to step in line o/w all the business would have gone to the bank that cut its rate. Thus the prime rate fell from 6.25% to 4.75% across the board, where it stands at today.
Just as an FYI, most financial institutions also go in tandem with B of C including credit unions and trust companies.
Had B of C cut its rate today by a 1/4 percent which some analysts predicted, most likely all banks would have followed suit and the prime rate would've dropped to 4.5% and your mortgage rate being a variable rate would've also experienced a 1/4% haircut, most likely for your next payment unless of course you opted for variable rate but fixed payment if rates go down (I don't know if the reverse is available though I doubt it, i.e if rates go up your mortgage payments still remain the same- known as the accordion style mortgage)
In an unusual move- first since 1997- I believe- I haven't googled but am tossing this out from memory- TD has not matched B of C 's rate cut of .5%.
It has only lowered its prime rate by .25% .
Perhaps some others on board can give their insights on this other than the banks don't think a 1.75% spread will increase their bottom lines so have instead decided on a 2% spread.
http://network.nationalpost.com/np/blogs/fpposted/archive/2008/10/09/libor-surges-despite-rate-cuts.aspx
despite the rate cut, most mortgage rates went up: canadian tire %5.79 from %5.10, ing %5.79 from %5.25, not to mention the big banks.
Puzzle time - Find the stupid person?
http://d.yimg.com/us.yimg.com/p/uc/20081008/ltt081008.gif?ref=patrick.net
Although initially all Canadian banks decided not to lower their prime lending rate by 50 bps as done by B of C, but eventually they did it. However, like in the past, nowadays no bank is offering any discounts on variable mortgages. Infact TDCT is charging Prime + 1% for variable mortgages and home equity LOC....FYI....Moreover fixed rate mortgages posted rates have gone up...
I guess this could be because they were too aggressive in booking mortgage biz and now realised that they are stuck with a lot of variable mortgages where they are actually not making any profits.
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Location: carl sagan's universe
Posted on: 12-10-08 17:32:58
Just as an FYI not all Canadian banks have lowered their prime rate to 4.25%. TD and CIBC are at 4.35% so far effective Tuesday Oct 14. Scotia, BMO, Royal, Laurentian, National have lowered to 4.25% effective Tuesday.
Don't know about CWB though- any news?
So when does this become effective..
Lets say my monthly mortgage payment is on the 20th of each month.. will this rate apply for the Oct payment or for the Nov Payment..
Quote:
Originally posted by investpro
Just as an FYI not all Canadian banks have lowered their prime rate to 4.25%. TD and CIBC are at 4.35% so far effective Tuesday Oct 14. Scotia, BMO, Royal, Laurentian, National have lowered to 4.25% effective Tuesday.
Don't know about CWB though- any news?
Depending on individuals credit score and the mortgage broker..mortage rates that people get can be much lower than what is listed on their website..
Usually the rates include the brokers commision and lower rate the person gives the lower will be his commision.. But due to compition he will reduce his comission than lose ur business..
The rate i got was .75% lower than what was listed on the banks website..
Quote:
Originally posted by rahul_singh23
http://network.nationalpost.com/np/blogs/fpposted/archive/2008/10/09/libor-surges-despite-rate-cuts.aspx
despite the rate cut, most mortgage rates went up: canadian tire %5.79 from %5.10, ing %5.79 from %5.25, not to mention the big banks.
Puzzle time - Find the stupid person?
http://d.yimg.com/us.yimg.com/p/uc/20081008/ltt081008.gif?ref=patrick.net
Location: carl sagan's universe
Posted on: 13-10-08 21:49:00
Hi dudes..
My educated guess is your bank will start applying the new rate in Nov. as they might claim their systems aren't geared to change rates on a dime
If rate is lowered again within this month they might lower it further next month.
Best to check with your bank though.
The word on the street is that TD and CIBC might just follow in the steps of the rest of the banks and lower to 4.25%
And again if Fed reduces rates on Oct 21 and Canada follows we might get another 1/4% cut.
Like back to 2004 rates.
Dow went up 11% today, so did S&P and Nasdaq.
Lots of indices rocketed up today.
