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Banks cut some mortgage rates
Toronto Star May 10, 2010

Madhavi Acharya-Tom Yew


The massive European bailout that sent stock markets soaring Monday also gave Canadian homeowners a reason to smile.

Several big banks cut residential mortgage rates, taking some of the sting out of a recent round of rate hikes.

RBC decreased its rates by 10 and 15 basis points, or 0.1 to 0.15 of a percentage point, on mortgages ranging from six months to 10 years.

National Bank and Scotiabank also dropped the posted rate on their five-year fixed rate mortgage by 0.15 percentage points, to 6.1 per cent.

That follows similar moves on Friday by the Bank of Montreal and Toronto Dominion Bank.

The decreases apply to fixed-rate mortgages, which are set at the discretion of the banks and do not affect variable-rate mortgages, which are tied instead to a bank’s prime rate.

The prime rate is set in relation to the key overnight rate set by the Bank of Canada and currently stands at an all-time low of 0.25 per cent.

The mortgage changes reflect easing in the bond market in the wake of the $1-trillion European bailout package, hammered out over the weekend.

The rescue deal is meant to ease the Greek debt crisis and keep it from spreading to other countries, threatening to derail the global recovery and pull apart the euro currency.

“It’s made the world feel a little more comfortable,” BMO Capital Markets economist Sal Guatieri said.

Canadian banks began increasing mortgage rates at the end of April to reflect their higher borrowing costs in the bond market. Stern warnings from the Bank of Canada about coming interest rate increases put pressure on the market.

More recently, investors clamoured out of European and corporate bond markets in search of a safe haven. That pushed up prices in North American bond markets.

As the bailout looked to smooth over concerns about the Greek debt crisis, investors regained their appetite for risk, and went streaming back into equities, currencies, and European bond markets Monday.

Market watchers still expect the Bank of Canada to increase the overnight rate starting June 1 to combat inflation as the Canadian economy gathers steam. The central bank has noted that the recovery has been stronger than anticipated, particularly in consumer spending, housing markets, and the labour market.

That’s likely to send borrowing costs higher through the rest of this year.