Pressure on lenders to adjust mortgage portfolios

Not so long ago, one was able to obtain a prime minus 0.80% (P-.80) or better which meant you would currently have an interest rate at 2.20% or better, and now the lenders have decreased that discount to prime or even P-.010%, with a few holdouts still in the p.-30% to p.-40% range.

Once those holdouts make their move along with the rest of the herd, some analysts are expecting to see that prime might be the new norm, meaning that there won’t be any discounting.

There has been a lot of consumer movement this past year to the variable rate and that’s put a lot of pressure on the lenders to adjust their mortgage portfolios.

Lenders typically prefer to have their mortgage portfolios weighted about 70% fixed and 30% variable, but with the global developments over the past few years many have had to re-look at their books and make some adjustments as some lenders are becoming too heavily weighted on the variable side.

I read somewhere that one particular lender is carrying close to 50% of its portfolio in the variable side and that it may become unmanageable for them.

Prior to the great recession of 2008, as a percentage, consumers with a variable rate have saved money versus their counterparts on the fixed side. Yet, during that time period over two-thirds of Canadians still went with the safety of the fixed rate.

Looking back one wonders why more hadn’t gone with a variable, but psychological factors come in to play – comfort vs. risk. Canadians generally do not like risk, and there’s nothing wrong with going with a fixed as I’ve advised many of my clients to go with a fixed rate simply because their incomes couldn’t handle much of a fluctuation in payment.

With five-year fixed rates even stronger than one could ever have imagined even six months ago, never mind three years ago, it’s tough to look at the down sides of either.

Prior to this past August five-year fixed rates were never better than 3.39%, then the U.S. congress set fear across the globe along with further deepening European debt crisis and the bond rate tumbled to a new all time low.

At this time, ATB dropped their 5-year fixed down to 3.09% for about two and half weeks, but other lenders just didn’t come close to competing with that and the best fixed rate sat at 3.29%.

The best five-year fixed currently sits at 3.34% for the time being but there is some upward pressure as North American economies are gaining employment momentum.

With the current spreads between fixed and variable being so small, just over 60 basis points, and that figure to be shrunken further shortly enough, the five-year fixed is going to look even more attractive if they stay flat for the next little while.

With going into the winter months, I am not expecting much of an increase to the fixed rate, but we are definitely in times where one never says never as no one expected variable discounts to all but go away.

Jean-Guy Turcotte is an Accredited Mortgage Professional at Dominion Lending Centres-Regional mortgage Group and can be contacted for appointments or questions at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca

Just Posted

Dan Davidson up for five ACMA Awards

Davidson will head to Red Deer with Brett Kissel in the New Year

Blackfalds RCMP respond to serious collision

Car collides with moose, driver suffers life threatening injuries

RCMP offer crime prevention tips for the holiday season

Red Deer RCMP give tips so holidays aren’t marred by theft or damage

Sagmoen neighbours recall alleged hammer attack

Woman was screaming outside Maple Ridge townhouse in 2013

Local family donates series of books to University of Lethbridge

Presentation recently made at the Dr. Dorothy Lampard Reading Room official opening

Troubled Monk releases new spirit

Troubled Spirit vodka was introduced in early December

Firefighter dies, thousands more take on California blaze

This is second death linked to the Thomas fire, northwest of Los Angeles

FCC votes along party lines to end ‘net neutrality’

Move rolls back restrictions that keep big providers from blocking services they don’t like

Truck driver volunteers to take dog lost in B.C. back home to Alberta

Frankie, a pit bull service dog, was found wandering in the Lower Mainland

Disney buying part of 21st Century Fox in $52.4B deal

Disney is buying a large part of the Murdoch family’s 21st Century Fox for about $52.4 billion

Bountiful polygamist believed he couldn’t be prosecuted: lawyer

Winston Blackmore’s lawyer says Blackmore did not believe he could be prosecuted

Woman charged after altercation injured baby in Toronto

Charges have been laid after a four-month-old baby girl was critically injured in Toronto

Ottawa Senators forward Chris Neil announces retirement

Veteran Ottawa Senators forward Chris Neil spent 15 seasons with the NHL team

Trudeau’s office confirms staffer being probed over allegations

PMO confirms staffer being probed over allegations of reported “inappropriate behaviour.”

Most Read