The big banks dropped their prime lending rate late Tuesday, almost a week after the Bank of Canada cut its key lending rate. But they're not passing along the entire rate cut the central bank had announced.
Royal Bank was the first of the big banks to cut its prime since last Wednesday's surprise rate cut by the central bank. Other banks later matched Royal's move.
The banks trimmed their primes by 0.15 of a percentage point to 2.85 per cent. The Bank of Canada had cut its key overnight rate by a quarter of a percentage point to 0.75 per cent.
"We believe our announcement is a balanced approach which reflects our actual cost of funds and helps clients save money on products such as variable-rate mortgages, lines of credit and floating-rate loans," RBC said in a statement.
"Our decision was driven by a number of factors, including our wholesale funding costs, the competitive, operating and macroeconomic environments, and the Bank of Canada’s recent rate decision and its impact on other market rates across the yield curve."
When prime rates fall, a whole range of floating interest rate loans like lines of credit and variable-rate mortgages fall in lock-step.
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Usually, when the Bank of Canada moves its key rate, prime rates quickly follow. But for six days, the banks didn't move their primes despite pressure from consumers looking for relief on their floating-rate loans.
Fixed-rate mortgages heading down
Fixed mortgage rates have already begun to drop slightly at many banks. But longer-term fixed-rate mortgages depend on the bond market, not the Bank of Canada’s overnight rate. With yields on longer-term bonds steadily falling and now at historic lows, it’s not surprising that fixed mortgages have begun to slide.
A five-year fixed mortgage now carries a posted rate of 4.79 or 4.84 per cent at several banks, down 0.10 or 0.15 of a percentage point over a week ago. Most borrowers will pay considerably less than the posted rates.
TD Bank, for example, on Tuesday lowered its “special fixed-rate offer” for a five-year closed mortgage by a fifth of a point to 3.09 per cent. Many smaller lenders and independent mortgage brokers can offer even lower fixed mortgage rates.