On the heels of the new mortgage policy changes and a recent announcement by the Bank of Canada to keep the key overnight rate at .50%. The TD bank will increase its spread over the overnight rate by raising the prime rate to 2.85% This means that TD is now at 2.35% above the Overnight rate that the Bank of Canada has set.
We are anticipating that in the next Interest rate announcement scheduled for the 7th of December 2016 the bank of Canada will be reducing its overnight rate.
These decisions to raise the prime rate are never done by only one lender and I believe that we will be seeing all the banks raising the prime rate to meet with the rate that TD Bank has set.
The overnight rate has not changed since the 15th of July 2015. Yet banks are raising the prime. Historically the spread that the banks had over the Overnight rate was 1% however since the bank of Canada has dropped its rate to under 1% the banks decided to increase the spread they have. This translated to huge profits for them instead of giving the money back to the consumer.
The main people that will be impacted by this change are those with variable rate mortgages and Lines of credit. Consumers in the last couple of years have become increasingly rate sensitive, as rates fall people will argue and complain over the smallest changes in rates. I have personally witnessed people take days of work to save .05 Bps off a mortgage rate. Big banks and unscrupulous mortgage brokers sucker consumers in giving them low rate mortgages and bad advice. The mortgages are loaded with restriction and leave consumers vulnerable to rate changes that can be unilaterally decided by the banks. It remains to be seen what will happen during the next rate announcement, but one thing is for sure regardless of what happens I do not see banks lowering the prime rate. Rather if the BOC lowers the overnight rate they will just put more money in their pockets.
As always I am available to answer any questions.
Also, take a look at some of the best mortgage rates in Quebec