Bank of Canada cuts key rate by 0.25%

[Mortgage Made Easy]

Originally Posted by GP_Matt

I wonder if there is grounds to go after the banks for misrepresenting how prime works.
I was told that it was tied to the BoC overnight rate when I signed up for my variable rate mortgage.

If they don't have to follow the BoC does that mean that they can raise prime tomorrow for no reason?

Banks are unfortunately not misrepresenting themselves but the bank representative may have mislead you?

Prime is influenced by BoC rate but does not necessarily go up or down when the BoC rate changes as we have experienced a few times, as recent as last week.

Your mortgage agreement is Bank (insert bank name) Prime + or - the variable component is what you are agreeing too... more specifically the discount off of Prime.

Yes they could raise Prime if the lender felt they could get away with it, without the BoC increase. It is the lenders decision to do so...

[kevman]

I dont know, in recent history the majors had no problems raising prime a day after the last BOC rate change.

8 September 2010
The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent.

http://www.bankofcanada.ca/2010/09/f...se-2010-09-08/


Scotiabank: Effective 9 September 2010
TD: Effective Date SEP 9, 2010
RBC: Royal Bank Prime 3.000 2010/09/09

[mrkajz44]

The question I have in all this "lowering prime" stuff is: Is there a "floor" for the banks in which they cannot lower rates any further and still have reasonable profit?

Rates are already pretty low, and there are expenses incurred on all their lending products that they need to cover. Have we reached this "floor" and no matter how low the BoC goes, the banks simply cannot go any lower and still cover their costs (with some sort of margin of course)?

[Mortgage Made Easy]

Originally Posted by kevman

I dont know, in recent history the majors had no problems raising prime a day after the last BOC rate change.


http://www.bankofcanada.ca/2010/09/f...se-2010-09-08/


Scotiabank: Effective 9 September 2010
TD: Effective Date SEP 9, 2010
RBC: Royal Bank Prime 3.000 2010/09/09

One thing that history has proven is that the Banks will typically (without much delay) increase Prime when the BoC increases their rates.

[Mortgage Made Easy]

Originally Posted by mrkajz44

The question I have in all this "lowering prime" stuff is: Is there a "floor" for the banks in which they cannot lower rates any further and still have reasonable profit?

Rates are already pretty low, and there are expenses incurred on all their lending products that they need to cover. Have we reached this "floor" and no matter how low the BoC goes, the banks simply cannot go any lower and still cover their costs (with some sort of margin of course)?

Prime was as low as 2.25% prior to the increases in 2010. BoC raised rates by 0.75% and the banks followed suit... which is where Prime has been (3.00%) since 2010.

So yes I believe there is room for the banks to make concessions... they could lower rates but feel there is no need to make an immediate decision.

[kevman]

And that there is the outrage.

Rates go up? "With the increase of the BOC rate you will see an increase in prime"
Rates go down? "There are more factors than the BOC rate that dictates prime"

[MillerTime GFG]

Originally Posted by Deegee

MillerTime: Can you shoot me a PM if you don't feel comfortable telling me in the thread what your Credit Unions are paying you for HELOC referrals? I'd be curious to see how competitive we are in that area.

It may as well be in food stamps, but ya, I'll PM you.

[MillerTime GFG]

More fuel to the fire from Rob Carrick with Globe and Mail with this article titled "Banks fail ethics test by not lowering prime rates". http://www.theglobeandmail.com/globe...ticle22642899/

Don’t be distracted by the fixed-rate mortgage cuts just announced by some banks – that’s just a smokescreen to cover their unwillingness to move on the more influential prime rate, which guides not just variable-rate mortgages but also lines of credit and floating rate loans.

There’s talk now that the banks’ non-compliance on prime has made it more likely the Bank of Canada will cut rates again soon. All lenders are equally guilty of blowing off the Bank of Canada, but the big banks are the worst offenders because they set the trend in the financial sector. If the banks are resisting, others will, too.

[Flamenspiel]

Originally Posted by squiggs96

So mortgage money is the cheapest it's been in 4 years, and you want people to keep the payment the same? I don't get it. Why not lower your payments and use this money to invest? For those that have credit card or other debt, wouldn't it make sense for them to pay down those? I understand want to get out of debt, but there are many valid reasons why you drop your payments now with the interest rate drop, especially when mortgage interest is not calculated in advance.

Yes credit cards first, but it's great to own your home. Until you pay the mortgage off, the bank owns it. That was good advice from a lender.

[mrkajz44]

Originally Posted by Mortgage Made Easy

Prime was as low as 2.25% prior to the increases in 2010. BoC raised rates by 0.75% and the banks followed suit... which is where Prime has been (3.00%) since 2010.

So yes I believe there is room for the banks to make concessions... they could lower rates but feel there is no need to make an immediate decision.

Wow - didn't realize prime was as low as 2.25%. I don't really follow it as I have no products tied to prime. Well, I guess there really no argument that prime at 3% is the "floor" then. Good to know.

[Street Pharmacist]

I could understand the "ethics" argument if there was more to it than "You could lower process but you won't because you love profit". Granted I haven't read too much more into it, but why should they lower rates? If the answer is because they can, that's a very poor argument. You could make less and save your company some money, so what don't you do it?

[MillerTime GFG]

Originally Posted by Street Pharmacist

I could understand the "ethics" argument if there was more to it than "You could lower process but you won't because you love profit". Granted I haven't read too much more into it, but why should they lower rates? If the answer is because they can, that's a very poor argument. You could make less and save your company some money, so what don't you do it?

The BoC takes monetary policy action such as the recent change to the overnight rate to help influence positive change to the economy. Banks are just somewhat important in the grand scheme, and while they're not legally obliged to do so mirror the BoC's changes, it's assumed there's almost an unwritten agreement.

[Deegee]

Originally Posted by mrkajz44

The question I have in all this "lowering prime" stuff is: Is there a "floor" for the banks in which they cannot lower rates any further and still have reasonable profit?

Rates are already pretty low, and there are expenses incurred on all their lending products that they need to cover. Have we reached this "floor" and no matter how low the BoC goes, the banks simply cannot go any lower and still cover their costs (with some sort of margin of course)?

The organization I work for lost money in a couple of months in 2009 when Prime was at 2.25%, but Credit Unions have a different business model then banks.

[Slava]

RBC finally cut to 2.85%. Maybe the other banks follow suit or go all the way to 2.75% now?

[MillerTime GFG]

Originally Posted by Slava

RBC finally cut to 2.85%. Maybe the other banks follow suit or go all the way to 2.75% now?

RBC reduced their 5 year fixed to 2.84% yesterday, but I've heard nothing about lowering their prime rate?

[Mortgage Made Easy]

Originally Posted by Slava

RBC finally cut to 2.85%. Maybe the other banks follow suit or go all the way to 2.75% now?

Slava, you are correct.

RBC lowered its Prime rate to 2.85%, effective tomorrow Wednesday... announcement here!

Stay tuned for others to follow!

[Slava]

Originally Posted by MillerTime GFG

RBC reduced their 5 year fixed to 2.84% yesterday, but I've heard nothing about lowering their prime rate?

Yeah, that basically just happened. I was trying to be the sureloss of the rate drop world I guess

[MillerTime GFG]

Originally Posted by Mortgage Made Easy

Slava, you are correct.

RBC lowered its Prime rate to 2.85%, effective tomorrow Wednesday... announcement here!

Stay tuned for others to follow!

Interesting! I did a quick search but it was right before that article came out.

[MillerTime GFG]

Originally Posted by Slava

Yeah, that basically just happened. I was trying to be the sureloss of the rate drop world I guess

You Sureloss'd that extremely well. NAME YOUR SOURCE!

[DoubleK]

Good on you RBC.