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TD lowers variable mortgage rate, suggesting no Bank of Canada rate change

(Consumer Reports)

TD Canada Trust dropped its 5-year variable mortgage rate by 0.10 to 2.85 per cent on Tuesday, just a day before the Bank of Canada reveals its latest interest rate decision.

TD currently has the lowest 5-year variable mortgage rate out of Canada’s Big 5 banks, both before and after they dropped their rate. Rates for all of the banks have risen over the last year due to previous moves by the Bank of Canada, but TD’s adjustment is a promising one.

Christopher Alexander, Executive Vice President and Regional Director for RE/MAX INTEGRA Ontario-Atlantic Canada Region, says he believes it’s a good indication that the Bank of Canada will hold its overnight rate.

“I always say they probably will hold rates but that’s my guess, especially if TD is dropping theirs,” says Alexander. “The [real estate] markets overall are a little bit lower than expected, but there’s still a lot of the country that’s performing very well…if they do increase them, it won’t be very much.”

Since the beginning of the year, the mortgage industry has taken a slight hit, particularly in Ontario which saw new lending rules come into effect. All mortgage applicants must now pass a stress test to demonstrate they could withstand an increase to their mortgage rate. Previously applying just to borrowers who required mortgage insurance, now all home buyers must pass the stress test.

Home sales are suffering as a result; in March, home sales fell 39.5 per cent year over year in Toronto.

While several factors go into the movement of bank mortgage rates, low mortgage applications likely contribute to the decision.

“It could be part of it, it’s always tied to economic performance, and we haven’t had that growth that we had last year in the economy — we’re not losing anything, but it’s kind of flat-lined a little bit,” says Alexander.

“What banks are really trying to do is manage the debt load, and they’re being as responsible as they can… in true Canadian fashion the Big 5 are being conservative, and they don’t want to make any drastic changes that could have an impact on their lending practices.”

Even with factors like the mortgage stress test, a volatile market and a tenuous situation with the United States and the NAFTA agreement, Alexander says that the Canadian economy is set to see a strong couple of years, so potential home buyers shouldn’t be scared off now.

“Interest rates will probably rise over the next few years, so it’s a good time to shop for mortgages,” says Alexander.

This move by TD, and similarly neutral positions held by the other Big 5 banks, is in line with the traditionally cautious approach they’ve had, which helps protect both consumers and the economy.

“A lot of our economy is based on the real estate market and the residuals based off of that,” says Alexander. “I’m really pleased to see they’re being responsible and don’t want to upset the apple cart.”


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