In the past month, all of the major Canadian banks have quietly moved to cut the discount they provide on mortgages. Why?, their profits have strung because their borrowing costs have increased. A significant reason for the increase in costs is due to the subprime scandal.
Discounts off prime hover around .60%, less then 2 months ago the discount was .90 percentage points off. With prime at 6.00%, it means the difference between a mortgage rate of 5.40% versus 5.10% which could mean an additional $1,500 of interest on an average Canadian home over 5 years.
The move to sharply reduce discounts is not just limited to variable rate mortgages. The banks have also cut how much they are willing to lop off longer term mortgages, including the five-year closed mortgage which remains the most popular product in Canada.
The move by the banks is typical. They made a mistake and now Canadian consumers will have to pay for it.
Duncan Seward is a mortgage broker in BC. He is an advocate for people who have been rejected by conventional lenders. Duncan’s business focus is on second mortgages in BC and debt consolidation in BC.
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