TD Bank Discounts 5-year Variable Mortgage Rate as Competition Heats Up

May 15, 2018 Updated: May 17, 2018

TORONTO—TD Bank is joining a rival bank in offering a highly discounted variable mortgage rate as competition among Canada’s biggest lenders heats up.

The Toronto-based bank said on May 15 that it is lowering its five-year variable closed rate to 2.45 percent, or 1.15 percent lower than its TD Mortgage Prime rate, until May 31.

TD’s special rate follows last week’s move by the Bank of Montreal, which discounted its variable mortgage rate to 2.45 percent until the end of May.

Canada’s lenders often offer special spring mortgage rates as homebuying activity picks up, but Robert McLister—founder of rate comparison website RateSpy.com—said last week that BMO’s special discounted variable rate was the biggest widely advertised discount ever by a Big Six Canadian bank.

TD’s discounted rate brings its variable mortgage rate offer in line with BMO’s.

“TD is not lying down,” McLister said. “Mortgage growth is the lowest since 2001, you’ve got interest rates going up, and less people getting mortgages because of that… They have the ability to match this rate and still make money.”

TD spokeswoman Julie Bellissimo says its special five-year variable rate applies to new and renewed mortgages, as well as the variable rate term portion of certain TD home equity lines of credit.

“We are confident this is a strong offer for new and renewing customers, while ensuring we remain competitive in a changing environment,” Bellissimo said in an emailed statement.

Housing Market Cools

The moves come amid slowing mortgage growth. The Canadian Real Estate Association said that national home sales volume sank to the lowest level in more than five years in April, falling by 13.9 percent from the same month last year. The national average sale price decreased by 11.3 percent year-over-year.

Home sales have slowed due to various factors, including measures introduced by the Ontario and B.C. governments to cool the housing market, such as taxes on non-resident buyers.

Other headwinds for mortgage growth include higher interest rates and a new financial stress test that makes it more difficult for would-be homebuyers to qualify with federally regulated lenders, such as the banks.

As of Jan. 1, buyers who don’t need mortgage insurance must prove they can make payments at a qualifying rate of the greater of two percentage points higher than the contractual mortgage rate or the central bank’s five-year benchmark rate. An existing stress test also stipulates that homebuyers with less than a 20 percent down payment seeking an insured mortgage must qualify at the central bank’s benchmark five-year mortgage rate.

The tighter lending rules are making it harder for homebuyers to qualify for uninsured mortgages, and shrinking the pool of qualified buyers for higher-priced homes, CREA’s chief economist Gregory Klump said in April.

Meanwhile, Canada’s largest lenders all raised their benchmark posted five-year fixed mortgage rates in recent weeks as government bond yields increased, signalling a rise in borrowing costs.

In turn, the central bank’s five-year benchmark qualifying rate—which is calculated using the posted rates at the Big Six banks—increased last week to 5.34 percent. This qualifying rate is used in stress tests for both insured and uninsured mortgages, and an increase means that the bar is now even higher for borrowers to qualify.

As well, since July, the Bank of Canada has raised interest rates three times to 1.25 percent, putting added pressure on consumers. But a rising interest rate environment also means that the margins—or profit made on loans—on mortgages for banks will improve if interest rates rise.

Rising interest rates also drive up demand for fixed-rate mortgages, and banks may discount variable mortgage rates in an effort to balance the books, according to McLister.

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