In the last week we’ve seen a reduction in the discounts lenders are offering on their variable rate mortgages (VRM). While heavy discounts of 0.80-0.90% have been common place in the Canadian mortgage market for a while now it seems these discounts are slowly being eroded by the lenders. Lenders are citing the narrowing of spreads (i.e. the difference between the cost of lending and the rate charged) culminating in decreased profit margins on VRMs.
New Reporting Rules May be to Blame
The introduction of the new International Financial Reporting Standards is also playing its part, forcing all financial institutions to include securitized assets on their balance sheets when calculating capital ratios. This increases the amount of money these lenders have to keep in reserve, the expense of which it seems is being passed down to the borrower. Prior to January 1st 2011 these lenders weren’t required to allocate capital to these securitized mortgage (mortgages which are bundled with other mortgages and sold in the form of bonds on the market) in order to meet asset-to-capital multiples. This is no longer the case.
What Does it Mean for Your Mortgage?
While it is important to note that this will not affect Morcan Direct’s existing customers, who have been enjoying the additional savings of the rock bottom variable rates we’ve secured for them, it could well impact new buyers coming to the market. With nearly half of the lenders having acted to reduce their discounts already, the ability of a mortgage broker to help source the remaining, deeply discounted rates is essential. We at Morcan Direct strive to give our customers sound, unbiased mortgage advice and if you are entering the property market and would like to hear about how we can still get you these ultra-low rates then give us a call today at 416-214-9000. Don’t let the banks’ concerns about their “falling profit margins” prevent you from getting the best mortgage possible for your property.