Bank of Canada cuts key rate by 0.25%

[FLAMESRULE]

I'm with RMG and emailed them about our variable rate (2.35%) and when they are going to cut it...this is there response:


"Although the Bank of Canada has cut the overnight lending, this does not mean an immediate change to prime rate. At this time, there is no scheduled change, however, should any of the major banks choose to change their prime rate, all others will usually follow suit, and this will be big news and will be reported on by all media types."

My response:

"So we can safely presume that when the Bank of Canada increases interest rates that there will be similar treatment with no immediate change to prime by RMG??"

[blueski]

I wonder if the drop in BOC rate wasn't a stealth bailout to the big five banks who may be nervous with their current residential and commercial loans given the drop in crude.

Last time a bank didn't follow a BOC rate cut, Mark Carney was apparently on the phone giving them hell.

This time Joe Oliver doesn't want to "meddle in the day to day operations of commercial banks"

May have to switch all my day to day banking elsewhere and follow suit with my mortgage if they stall for too long with this BS.

[GP_Matt]

Switch to who? They are all doing it.

[blueski]

Originally Posted by GP_Matt

Switch to who? They are all doing it.

Credit union. F the big five banks.

[MillerTime GFG]

Originally Posted by blueski

Credit union. F the big five banks.

The chain on credit unions is going to be tightened very soon as well.

[blueski]

Originally Posted by MillerTime GFG

The chain on credit unions is going to be tightened very soon as well.

Barter and BTC then

[blankall]

Originally Posted by FLAMESRULE

I'm with RMG and emailed them about our variable rate (2.35%) and when they are going to cut it...this is there response:


"Although the Bank of Canada has cut the overnight lending, this does not mean an immediate change to prime rate. At this time, there is no scheduled change, however, should any of the major banks choose to change their prime rate, all others will usually follow suit, and this will be big news and will be reported on by all media types."

My response:

"So we can safely presume that when the Bank of Canada increases interest rates that there will be similar treatment with no immediate change to prime by RMG??"

A bank will never announce it's intentions to drop a rate ahead of time. If they did that people would just hold off on their transactions and it would cost the banks millions.

The banks may be forced to lower rates eventually, but they will always deny deny deny until they do.

[Slava]

Originally Posted by MillerTime GFG

The chain on credit unions is going to be tightened very soon as well.

I'm interested in this. How so?

[Mortgage Made Easy]

Interesting article about BoC rate and Prime rate, posted in Financial Post

The “whole point [of the cut from 1% to 0.75%] was for the banks to follow suit [and] stimulate spending. If they don’t, then the Bank cut the rate for nothing,” a former Finance official who now advises banks told the Financial Post.

Further into the article it mentions that if banks don't cut Prime, BoC may be forced to lower BoC rate again to get the banks to cut Prime

If banks don’t come to the conclusion that they need to cut their lending rates, observers say the Bank of Canada may act again and slash overnight interest rates further.

“I think what you might see, if the banks don’t pass on this cut, is the Bank of Canada will just lower rates again in the spring to force them to do it,” said one banking source.

That view was backed up by research published Friday by Bank of America Merrill Lynch, which noted that the prime lending rate at banks typically moves “in lockstep” with Bank of Canada adjustments.

“In our view, if banks fail to lower the prime rate, [Bank of Canada Governor Stephen] Poloz may be tempted to respond with another dose of policy easing,” economist Emanuella Enenajor wrote in the report

It seems as though it is still a wait and see on whether someone lowers Prime before the next BoC meeting. The next 3 meeting dates are:
4 March
15 April* Monetary Policy Report published
27 May

[MillerTime GFG]

Originally Posted by Slava

I'm interested in this. How so?

I have heard that regulations may be implemented to reduce the advantage credit unions have. Specifically, I was told from my rep at Servus that the 80% HELOC may be a thing of the past shortly. Outside of construction draw mortgages, that's the only reason I've ever used Servus (80% HELOCS), as they're not very competitive in the rate game.

All hearsay for now, but I did hear it from those in the know.

[Ryan Coke]

This is one thing that surprises me, that maybe should be addressed politically. That there aren't rules that banks must follow suit on BOC prime changes, and that variable rate products must move both down and up.

As has been said, people take the risk on variable rate mortgages that they will benefit from interest rate decreases as well as be exposed to rate increases. The banks appear to be trying to possess cake as well as consume it concurrently.

Not to mention for every day they delay it is presumably stuffing a bunch of extra money into there accounts at the expense of every debtor who should be seeing their rate reduced.

I could see the government putting in some regulatory muscle behind it if this is the way the banks choose to act.

[Slava]

Originally Posted by MillerTime GFG

I have heard that regulations may be implemented to reduce the advantage credit unions have. Specifically, I was told from my rep at Servus that the 80% HELOC may be a thing of the past shortly. Outside of construction draw mortgages, that's the only reason I've ever used Servus (80% HELOCS), as they're not very competitive in the rate game.

All hearsay for now, but I did hear it from those in the know.

So, purely for my own curiosity, are the credit unions allowed to write HELOCs at 80% LTV and everyone else has to write them at 65%?

[MillerTime GFG]

Originally Posted by Slava

So, purely for my own curiosity, are the credit unions allowed to write HELOCs at 80% LTV and everyone else has to write them at 65%?

Yep. B20 reduced the limit on HELOC's for banks to 65% from 80%. With credit unions being provincially regulated, they didn't have to adhere to that. They can also qualify their HELOC's at their 3 year fixed rate (somewhere around 3.29% right now), amortized over 25 years, whereas banks have to use the benchmark rate of 4.79% over 25 years. There are many other niches they have as well. So they're easier to qualify for, and can be utilized up to a higher loan to value.

Banks can still do HELOCs when there is only 20% equity, but the 15% between 65 and 80 would have to be locked into a fixed or variable mortgage.

[Slava]

Originally Posted by MillerTime GFG

Yep. B20 reduced the limit on HELOC's for banks to 65% from 80%. With credit unions being provincially regulated, they didn't have to adhere to that. They can also qualify their HELOC's at their 3 year fixed rate (somewhere around 3.29% right now), amortized over 25 years, whereas banks have to use the benchmark rate of 4.79% over 25 years. There are many other niches they have as well. So they're easier to qualify for, and can be utilized up to a higher loan to value.

Banks can still do HELOCs when there is only 20% equity, but the 15% between 65 and 80 would have to be locked into a fixed or variable mortgage.

Ya I knew that the credit unions were regulated provincially, but I guess I assumed that mortgages were federally regulated or something and didn't see the distinction. Thats crazy that there is that much of a difference in that case. I mean if the credit unions are able to guarantee 100% of deposits with no limit that's one thing, but mortgages that are different in terms of restrictions and risk seems completely different.

[MillerTime GFG]

Originally Posted by Slava

Ya I knew that the credit unions were regulated provincially, but I guess I assumed that mortgages were federally regulated or something and didn't see the distinction. Thats crazy that there is that much of a difference in that case. I mean if the credit unions are able to guarantee 100% of deposits with no limit that's one thing, but mortgages that are different in terms of restrictions and risk seems completely different.

Ya it's quite an unfair advantage for the CU's in a lot of situations, and I know for a fact it drives a lot of the big banks BDM's nuts. From a brokers' standpoint though, it's a nice option to have in the back pocket.

[MillerTime GFG]

Originally Posted by Mortgage Made Easy

Interesting article about BoC rate and Prime rate, posted in Financial Post


Further into the article it mentions that if banks don't cut Prime, BoC may be forced to lower BoC rate again to get the banks to cut Prime


It seems as though it is still a wait and see on whether someone lowers Prime before the next BoC meeting. The next 3 meeting dates are:
4 March
15 April* Monetary Policy Report published
27 May

Further to this, TD is predicting BoC to drop by another 25 bps in March.

http://www.cbc.ca/news/business/bank...icts-1.2931859

[Calgary14]

http://business.financialpost.com/20...cut-last-week/

RBC has lowered their 5 year fixed rate to 2.84%

[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?

[MillerTime GFG]

http://business.financialpost.com/20...cut-last-week/

RBC has lowered their 5 year fixed rate to 2.84%

Ya I heard that on my way into the office this morning. While not the lowest 5 year fixed out there, it's definitely the lowest amongst the big five. Fixed rates are down across the board.

[Deegee]

Originally Posted by MillerTime GFG

Ya it's quite an unfair advantage for the CU's in a lot of situations, and I know for a fact it drives a lot of the big banks BDM's nuts. From a brokers' standpoint though, it's a nice option to have in the back pocket.

There are disadvantages too, because quite frankly the cost of funds for Credit Unions are much higher then chartered banks which is something that drives Credit Union people nuts. People typically come in and complain about our pricing when we have access to such cheap funds (we do?!?!?) until they better appreciate that we are left to lend out our deposits almost exclusively.

Originally Posted by MillerTime GFG

They can also qualify their HELOC's at their 3 year fixed rate (somewhere around 3.29% right now), amortized over 25 years, whereas banks have to use the benchmark rate of 4.79% over 25 years. There are many other niches they have as well. So they're easier to qualify for, and can be utilized up to a higher loan to value.

As a Credit Union guy, I can comment that we have qualified many people without GDS/TDS even coming close and using interest only if there is a common sense element attached to a deal.

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.