Canadian banks are trying to convince consumers to lock in their mortgage rates because more than 20 per cent of the home loans they have negotiated have become unprofitable, according to industry sources.

The push has come after the banks cut the discount they offered to consumers with variable-rate products tied to the prime lending rate. Two weeks ago, a consumer could get a variable rate product at 0.60 percentage points below prime; today it is one percentage point above prime.

"Banks are scaring people and those people are calling asking whether they should lock in.
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Anybody with a mortgage negotiated in the past two years would be out of their mind to lock in to, say, a five-year term. They would be going from a rate as low as 3.35 per cent to 5.79 per cent. Lines of credit previously negotiated at a rate below prime are also still valid.

"If you've got a mortgage rate negotiated below prime, you have a dinosaur. It doesn't exist anywhere.
You should hold onto until the end of the term. The banks propped up all their rates 160 basis points because they knew the Bank of Canada would be lowering rates."

Last week, the Bank of Canada lowered interest rates by 50 basis points only to see the major banks cut their prime lending rate by half that amount. After some pressure, most of the banks cut their prime lending rate by the full 50 basis points.

Joan Dal Bianco, vice-president of real estate-secured lending with Toronto-Dominion Bank, said the banks were reluctant to pass on the full 50-point rate cut because they were losing money on variable-rate products.

"At the prime minus rates we were basically earning zero or negative. We kept holding off (cutting the discount)," said Dal Bianco, adding that in the past year 50 per cent of her bank's new mortgages were variable-rate products.

With a cost of funds generally above four per cent because of the lack of liquidity in the market, the mortgages previously negotiated ended up below water after the latest rate cut.

Prime is now 4.25 per cent at TD but two weeks ago the bank was offering a variable rate of 60 basis points below prime, meaning the consumer was borrowing at 3.65 per cent.

For those now entering the housing market, the rate is 5.25 per cent for a variable rate product but Dal Bianco said that might not be high enough. "We are not making much money on those if anything." she said.

The move into variable mortgages tied to prime has come in the last five year with many of the banks promoting products that allow consumers to float with prime but lock in a rate at any time during the term of their mortgage.

The Canadian Association of Accredited Mortgage Professionals says, as of 2007, 21 per cent of mortgages were variable rate, 72 per cent were fixed rate and seven per cent were a mix of the two.

Asked whether the banks are actively encouraging consumers to convert variable rate products, Dal Bianco said that hasn't happened. "We are making sure (staff) have the right conversations if people are really nervous and do not want to see their payment moving."

Another key question going forward for consumers will be whether the prime rate at the banks will continue to move with Bank of Canada's rate and nobody is guaranteeing that.

"It's not that (prime) is less meaningful, it just doesn't mean what it used to," says David Wolf, chief economist at Merrill Lynch Canada. "(Prime) is more likely to fall if the overnight lending rate is zero than if it's 2.5 per cent."

Get the necessary cash to transform your home into a cozy, elegant movie residence. Let your imagination grow wild, sit down with your wife and start designing the new aspect of your old home. Nobody will recognize it… and all thanks to a simple home improvement loan, that will be just what you need to make a new start when life was beginning to get boring.

Living A Comfortable Life At Last

Getting up early when you wanted to go on sleeping, taking the kids to school, going off to work, paying the bills, taking out the trash and Goodness knows what trouble you find during the day, deserve a prize. At the end of the day, you are welcomed by your dream house, soft music, the kids playing in their own room and your sweetie cooking something with a marvelous aroma.

Hey, It Is Not All Dreaming, Eh?

Nope, it is not ONLY about dreaming. Want to make it real? All you need is to take the decision to get it done. Well, start finding out about home improvement loans. There is one just right for you. When something has a determined name, it means that it is a specific product for a specific use. That is what makes it ideal for the purpose.

Is There More Than One Option?

Certainly. Depending on the amount needed for the improvement you want to make, you can take a home improvement loan or a mortgage loan. The mortgage Montreal loan will be great, because the amounts considered are greater, and will give you more than enough to get the job done.

The Downside Of The Mortgage Loan

That is the point… more than enough may be a little too much and what is more, the financing period, too long. Therefore, reducing the stakes a bit, we have a home improvement loan. You are not buying a new one, just improving your old one. Besides, what could be lighter on the family, than staying in the same neighborhood, with the same friends and knowing every single corner?

And Now, It Is The Lender’s Turn

Sift through the options on the Internet, and surely you will make a good deal. The thing here is to get an even better deal out of the lender you have chosen. Build up a folder with graphics in full detail. For this, you can get an architect, or do it yourself with a CAD program.

Next, make a list of the work that will be done, the materials you need and the final sum. Again, a reliable architect will be useful, but there are also little computer programs that do the numbers for you, if you are not willing to pay the fees. Then go to the lender and give them the impression of an organized guy, someone who gets what he wants.

A Good Deal Is More Than Just Being Able To Repay

You can also get insurance for your home, something that many people overlook. So there you have another negotiating factor. The broker you have chosen will surely be able to get you a favorable insurance policy, for your benefit and theirs. (They always have a share of whatever business they participate in)

Getting Started

Yes, you have to get started, put some action into all the thinking and dreaming and preparation. You have already done something by reading this article. Now it is time to start moving the pieces on the board. The best moment is now. You will be surprised with what you will get.