April 29, 2010
One question that’s not asked of banks very often is: are they being fair? Well, probably not. They’re banks. And it’s not their job to be fair.
Remember when the Bank of Canada cut rates during the peak of the recession and banks didn’t pass on the full decrease to consumers? That also wasn’t fair.
Here’s some other stuff that isn’t fair about banks right now:
- Mortgage rates right now are at 93% of their average level over the past 10 years despite record-low interest rates.
- GIC yields, where the bank gets a lot of its money for financing their mortgages, are still down at 2.1% which is 63% of its 10-year average.
- And sure, mortgage rates are more tied to bond rates than the overnight lending rates that the Bank of Canada sets. But c’mon…it’s true that bond rates have been going up for a while, but they’re still only at 75% of their long-term average.
So, what gives? Here’s what the mortgage man, John Turner from BMO, has to say for himself:
“It’s not about any of us trying to get ahead of things, because the market won’t let us…it’s a very competitive market…We don’t like to move rates because it causes dissatisfaction, and it causes disruption in the sales force” The Globe and Mail
Another reason rates are rising right now (apparently) is because so many borrowers are locking in right now that if rates do rise in the future then banks will be screwed. Why? Because they will be lending at the low rates mortgage holders locked in at and borrowing at higher rates.
Anyway, whether or not it’s justified, rates are going up before the Bank of Canada has even raised rates. And because there’s so much movement in the market, it’s a good time to make sure you shop around and get the best rate (for those renewing or for purchasers).