Now to 4.94%: Scotiabank trimmed its posted 5-year fixed rate to 4.94% on Saturday. That puts the mode average of the Big 6 Banks’ 5-year posted rates—and hence the minimum stress test rate—at 4.94%. Of note:
This is the lowest the stress test rate has been since October 2017
The all-time low was 4.64%, last seen almost three years ago (July 2017)
Compared to last week, it will now take about 0.8% less income ($102,150 total) to afford the average-priced ($488,203) home in Canada, assuming 5% down, a 25-year amortization and no other debts.
But, the drop in the average home price since March—by itself—lowers the minimum required income much more, by 10.3%. It also reduces the minimum required down payment on that average home, from 5.39% ($29,198) to 5.00% ($24,410).
Scotia’s Other Rate Drops: Scotiabank lowered these other posted rates as well:
1yr: 3.44% to 3.19%
2yr: 3.54% to 3.29%
3yr: 4.19% to 3.89%
4yr: 4.39% to 4.19%
5yr: 4.99% to 4.94%
5yr variable: 3.05% to 2.65% (Prime + .20)
The short-term posted reductions are mainly relevant because they increase prepayment penalties for many customers who are breaking their mortgages early. That’s due to how banks calculate prepayment charges.
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Hi Karen, RMG doesn’t publish its rates to the public. You’ll need to ask a mortgage broker, most of which will only quote RMG rates and not share the rate sheet with you.
For new borrowers dealing with a top 10 bank, other things equal, a drop in the 5-year posted rate can reduce future IRD penalties (should the borrower break the mortgage early).
The problem occurs when short-term posted fixed rates (like the 1-year fixed or 2-year fixed) also fall. If a 5-year fixed borrower breaks their mortgage with two years remaining, the bank will generally compare the borrower’s rate to its current two-year fixed rate *minus* the original discount they got off the 5-year posted rate. A falling 2-year posted rate therefore increases the interest rate differential and makes for a more unpleasant penalty.
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Hi Spy
Given the current 5 YR bond yield where should the average 5 YR posted rate really be?
If CMHC was using the new stress test that it proposed, the rate would be about 4.49%.
Where can I find RMG mortgage rates ? I know it’s off topic but they don’t seem to be posted anywhere. Thanks.
Hi Karen, RMG doesn’t publish its rates to the public. You’ll need to ask a mortgage broker, most of which will only quote RMG rates and not share the rate sheet with you.
Thanks. That’s what I was assuming. I can find some rates but not current ones.
Doesn’t the posted rate cut reduce the IRD which in turn reduces the penalties for mortgage payers? What do you mean by short-term posted reductions?
Hi Remi,
For new borrowers dealing with a top 10 bank, other things equal, a drop in the 5-year posted rate can reduce future IRD penalties (should the borrower break the mortgage early).
The problem occurs when short-term posted fixed rates (like the 1-year fixed or 2-year fixed) also fall. If a 5-year fixed borrower breaks their mortgage with two years remaining, the bank will generally compare the borrower’s rate to its current two-year fixed rate *minus* the original discount they got off the 5-year posted rate. A falling 2-year posted rate therefore increases the interest rate differential and makes for a more unpleasant penalty.
Here’s an IRD calculation example from RBC if anyone wants to understand this better: https://www.rbcroyalbank.com/mortgages/popup_mortgage-prepayment-charges.html
And here’s a list of “fair penalty” lenders where you’ll often pay a much lower prepayment penalty in a falling rate environment: https://www.ratespy.com/fair-penalty-lenders-which-lenders-have-the-lowest-mortgage-penalties-05109252
I was offered a 2.5% rate on a 5yr fixed rate with Scotia for Early renewal which is November. Should I take it now or will rates go down further
@Kerri
2.50% is a pretty good rate for that long of a rate guarantee.
If you want to try for better you can watch the 5 year bond yield. I think Ratespy said if it goes above .6% then fixed rates might go up.
https://www.marketwatch.com/investing/bond/tmbmkca-05y?countrycode=bx