Why Mortgage Posted Rates Are Still So High?
By ebizniz on April 4, 2008 - 4:54pm
Since June 2007 when Canadian Prime rate was raised from 6.0% to 6.25%, the credit seized-up in August forced the central banks of Canada to ease-up and cut interest rates from 6.25% in November 2007 to 6.0% in December followed by a further cut in January to 5.75%.
Canada followed the US aggressive cut in interest rates last month and made another rate cut from 5.75% to 5.25%. The next rate setting meeting by the Bank of Canada on April 22 this month is expected to result in another 0.25% to 0.50% reduction.
So far, Canadian Prime Rate had fallen 1.0 full percentage point, but Canadian Banks are slow to reduce their posted mortgage rates. Prior to the rate reductions, Canadian posted mortgage rates by Canadian Banks and credit unions were from 7.35% for 1-year term to 7.49% for 5-year term. Currently, the posted rates for 1-year and 5-year are at 7.15% and 7.19%.
The reason for the small reduction in the posted rates may be attributed to Canadian Banks taking advantage of the higher interest rate spread to beef-up their balance sheets. Some Canadian banks were reported to be badly affected by their subprime losses.
