Quote:
Originally Posted by Nancy
Isn't the thing, though, that the link between the key rate and prime is anything but direct.... and that bank's don't necessarily get to choose what they can lend out for. When they write a 5 year variable rate mortgage, they have to sell a bond or other instrument on the same 5 year term with enough spread to cover both the credit risk and transaction costs, and provide some profit as well. So they have to find some suckers who are willing to lend them money at some rate under prime, which may be getting more difficult to do?
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Well that is the LIBOR rate....the key rate is down at 1.5% in Canada, but the LIBOR is about 2.2%. In other words the banks are borrowing at a higher percentage and this cuts directly into their spread.