Category Archives: variable rate mortages

TD Bank Cuts Its 5-Year Posted Rate

Will the Stress Test Rate Follow?

After six long months of no changes to the big banks’ posted rates, TD Bank broke the ice on Tuesday by lowering its 5-year posted rate to 4.99% from 5.34%.

While the big banks adjust their “special” rates regularly (as RBC did last week), changes to their higher posted rates are more rare. And the move is important because it means other banks are likely to follow, and if enough do, it will lead to a drop in the 5-year benchmark qualifying rate…i.e. the stress test rate.

That would be welcome news to the countless mortgage shoppers out there who are struggling to qualify at the current benchmark rate of 5.19%.

“Based on current market conditions, lower funding costs have led to a growing variance in customer rates versus posted rates,” a TD spokesperson told BNN Bloomberg. “This rate decrease aligns TD’s 5-year fixed posted rate more closely with current customer rates.”

And that’s all true. Bond yieldswhich lead fixed mortgage rateshave plummeted roughly 30 basis points since the start of the year. And the big banks keeping their posted rates artificially higher (in TD’s case, it hasn’t cut its 5-year posted rate since March 2019), has started to draw attention from key industry players.

The OSFI Effect

TD’s rate drop suspiciously comes just days after a speech from Ben Gully, Assistant Superintendent at the Office of the Superintendent of Financial Institutions (OSFI), which regulates federal financial institutions.

Ben Gully, Assistant Superintendent, OSFI
Ben Gully, Assistant Superintendent, OSFI

In his speech, Gully admitted the use of the benchmark qualifying rate as the floor of Guideline B-20 stress testing for uninsured mortgages is “not playing the role that we intended.”

“For many years, our data showed the difference between the benchmark rate and the average contract rate was about 2%,” Gully said. “However, the difference between the average contract rate and the benchmark has been widening more recently, suggesting that the benchmark is less responsive to market changes than when it was first proposed.”

Some in the industry suspect that speech was the stick that broke the camel’s back and finally pushed the banks (or at least one of them) to adjust their qualifying rate.

Ron Butler of Butler Mortgage said TD’s move “absolutely” was a result of Gully’s comments, and he expects others to follow within the next week.

“We will see a 4.89% qualifying rate in the spring, if not sooner,” he told CMT.

Impact on the Stress Test

mortgage stress testEven if the qualifying rate were to drop that much, a 30-bps reduction would still only have a “minimal effect” for buyers  struggling to qualify, he said. Anecdotally, Butler estimates about 300 to 400 mortgage applicants he deals with each year have trouble qualifying under the stress test.

A recent survey from Zillow and Ipsos found that half of Canadians (51%) say they are concerned that stricter rules will prevent them from qualifying for a mortgage, up five points since 2018.

If the qualifying rate were to drop to just 4.99%, that would require roughly 1.8% less income in order to qualify for the average Canadian home, according to Rob McLister of It would also increase buying power by nearly 2%.

“These effects may seem small at the margin, but they’re magnified when you’re talking about thousands of buyers across Canada,” he wrote. “A lower stress test rate would also help refinancers qualify for bigger loans. Someone with an average home making $100,000 a year would qualify for a $9,000 bigger mortgage (+/-) if the stress test rate dropped to 4.99% from 5.19%.”

The ball is now in the court of the other Big 5 banks to determine what happens to the qualifying rate. You can be sure many prospective homebuyers will be watching closely.

Source: Canadian Mortgage Trends – Steve Huebl February 5, 2020
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New financing rules could drive more consumers into more volatile mortgages

Proposed changes to mortgage rules may force some consumers to consider more volatile variable rate mortgages in order to qualify under a strict stress test proposed by Canada’s banking regulator.

Guidelines published by the Office of the Superintendent of Financial Institutions in July, which the agency is now receiving feedback on, would change the qualifying rules for uninsured mortgages in Canada — a less regulated segment of the market made up of consumers who have down payments of 20 per cent or more.

The rules under consideration would force consumers to qualify for loans based on the rate on their contract plus 200 basis points, a move that might lead some people into shorter term loans that have lower rates and are therefore easier to qualify for.

“It could be one of the unintended consequences,” said Benjamin Tal, deputy chief economist with CIBC World Markets Inc., about the changes. Tal believes OSFI will modify its proposal before it is finalized and one of the factors under consideration could be how the rules might discourage Canadians from locking in their rates.

Rob McLister, the founder of, said the potential impact of the changes can be seen when examining the current yield curve, which shows longer term rates are still much higher. As an example, with the prime rate now 3.2 per cent and the average discount on a five-year variable rate mortgage around 65 basis points, that means those consumers would have to qualify based on a rate of 2.55 per cent plus 200 basis points or 4.55 per cent.


“Generally, the variable will be cheaper. Maybe the one-year or two years (even more so). We have people who can’t qualify because of 10 basis points. I think it will force at least 10 per cent of uninsured borrowers to look at shorter-term rates that have more risk,” said McLister, who notes the average five-year fixed rate mortgage is more like 3.19 per cent.

Those consumers looking for the safety of a five-year rate would end up having to qualify based on 5.19 per cent with the 64 extra basis points meaning they could get a larger loan by borrowing at short-term rates.

The Bank of Canada has raised its overnight lending rate twice in the last two months and may do so again in October. Such hikes, which affect variable-rate products that are tied to prime, are part of the risk that comes with a floating rate product.


McLister said a typical conventional borrower would qualify for a home that’s about six per cent more expensive by choosing a lower more volatile variable, one- or two-year rate instead of a “safer” five-year fixed.

That assessment was based on latest median household income from Statistics Canada, average non-mortgage debt, a 30-year amortization and a 20 per cent down payment

The OSFI changes fly in the face of previous government policy, which had tried to entice people into longer-term products by making the qualifying easier.

Consumers with less than 20 per cent down on a mortgage and their loans backed by Ottawa already must qualify based on the five-year Bank of Canada qualifying rate of 4.84 per cent. That rule change was made in October, 2016 but previously those high-ratio borrowers could use the rate on their contract if they were locking in for five years or longer.

Robert Kavcic a senior economist with Bank of Montreal, said households in Toronto — currently facing rapidly declining sales and an average price correction of almost 25 per cent from the April peak, can withstand more rate increases but he agrees people on the fringe may turn to shorter-term money to get into the housing market.

“I think the goal is to make sure people can pay higher rates two or three years down the road,” said Kavcic.”It does sound like there is more caution (about proposed changes) given what is happening in the Toronto market.”

Source: Financial Post – Gary Marr

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Three TD Bank Group employees are speaking out about what they say is “incredible pressure” to squeeze profits from customers by signing them up for products and services they don’t need.

The longtime employees say their jobs have become similar to that of the stereotypical used car salesman, as they’re pushed to upsell customers to reach rising sales revenue targets.

They say there has always been a sales component to the job, but the demand to meet “unrealistic” quarterly goals has intensified in recent years as profits from low interest rates have dropped and banks became required — after the financial meltdown of 2008 — to keep more capital on hand to protect against a downturn in the market.

“I’m in survival mode now,” says a teller who has worked at TD for more than 15 years, “because it’s a choice between keeping my job and feeding my family … or doing what’s right for the customer.”

She and the two managers who contacted Go Public have worked more than 50 years combined at the bank. CBC has agreed to conceal their identities and location because they are worried about being fired.

“When I come into work, I have to put my ethics aside and not do what’s right for the customer,” says the teller.

TD profits graphic

TD has steadily increased profits from 2012-2016. (TD 2016 annual report )

Documents provided to Go Public show the teller’s sales revenue goals have more than tripled in the past three years.

“You don’t know what it’s like to go to bed at night, knowing your job is now to set people up for financial failure,” says the teller, her voice cracking.

Go Public has heard from TD tellers in several Canadian cities who say they quit their jobs because the pressure to push products was so extreme.

“I was made to feel as if I was committing a huge wrong for looking out for the best interests of my customer over the interests of the bank,” says Dalisha Dyal, who worked as a TD teller in Vancouver for four years.

Another TD teller says the relentless pressure to meet sales numbers is so severe, the teller is currently on a medical leave.

Teller screens highlight potential sales

The three bank employees who initially contacted Go Public explained how tellers upsell customers: when a customer keys in a PIN at the teller counter, a gold star lights up on the teller’s computer screen, indicating that “Advice Opportunities Exist.”

TD monitors graphic

When customers enter their PIN at a teller counter, a gold star informs the teller of ‘opportunities’ to sell the customer products. (CBC)

When a teller clicks on the star, products and services the customer hasn’t purchased pop up, such as overdraft protection, credit card or line of credit.

Each time a teller gets a customer to sign up for one of those options, it counts towards meeting their sales targets.

“Customers are prey to me,” says the teller. “I will do anything I can to make my [sales] goal.”

TD disputes pressure to sell

TD Bank Group declined a request to be interviewed, but sent an email that disputes the allegations that products and services are sold to ill-informed customers who may not need them or realize how much they cost.

‘We will only achieve our goals by doing the right thing for our customers.’– Daria Hill, TD Bank Group

“Our expectations are that our employees should never sell a customer a product that doesn’t fill a need,” spokesperson Daria Hill wrote.

Hill said having “metrics” and “goals” is a good business strategy, but that “we will only achieve our goals by doing the right thing for our customers.”

Hill says customers have said they want TD employees “to know them, understand their needs, give them proactive advice and ask them about how we can best meet their financial needs.”

That explains why customer profiles are flagged for products, services and pre-approved offers, Hill says.

TD reports record profits

The employees’ allegations come amid reports last week of record profits for Canadian banks.

TD Bank Group reported fiscal first quarter earnings of $2.5 billion — up 14 per cent from a year ago. Revenue rose six per cent to $9.1 billion — making it the largest bank in Canada, based on assets, surpassing RBC.

The TD employees say elderly customers are a common target because they’ve grown to trust their tellers over the years.

“There are elderly customers who have fought for us — they have an army pension,” says the teller. “And here I am, setting them up with all these service fees and they don’t have a clue what’s going on.”

Both the managers sometimes work the front counter and say there’s a big push by their branch manager to sign up people for overdraft protection, so sometimes clients with large balances get it, too.

“Customers pay enough in service charges,” says one manager. “They shouldn’t have to worry … ‘What has my teller added to my profile today?'”

‘More pressure on us’

“The higher-ups are also putting more pressure on us to get tellers to achieve these goals,” says the other manager.

“And if they don’t … our job is to make sure that they understand that they’re no longer right for this job.”

“I feel bad for what they’re making me do,” she says.

TD branch

The TD employees Go Public interviewed say the push to make higher profits is turning some customers away. (CBC)

When the managers expressed concerns to their branch manager and district vice-president, they say they were asked to consider whether they were still “a good fit” for the job.

Documents obtained by Go Public show tellers who fail to reach their sales goals are called “underperformers” and placed on a “Performance Improvement Plan,” which involves daily coaching and monitoring by managers. If sales performance doesn’t improve, employees are warned “employment could be terminated.”

In the statement from TD, Hill says “Performance Improvement Plans are intended to support our leaders and people managers in helping employees improve their overall job performance and are intended to help employees be successful in their role.”

Short-term gains

Pushing products on customers to maximize shareholder profits may produce short-term gains, but it’s not in a bank’s long-term interest, says Laurence Booth, a professor of finance at the University of Toronto’s Rotman School of Management.

Laurence Booth

Laurence Booth of the University of Toronto’s Rotman School of Management says pushing products on customers to maximize shareholder profits may produce short-term gains, ‘but sooner or later, these things come back to bite you.’ (CBC)

“If their [TD’s] employees start looking at everybody that comes into the bank as … somebody to try to make as much money off as possible, then the result is they’re going to be squeezing short-run profits,” he says.

“But sooner or later, these things come back to bite you.”

Booth says all banks want to be known as “trustworthy,” but that trust can erode quickly if a bank gets a poor reputation.

Hidden camera test

Go Public conducted a hidden camera test at five Vancouver TD branches to see what happens at the teller counter.

One teller offered to “activate” overdraft protection — not mentioning that there would be a fee.

She also suggested opening an account with monthly service fees of $29.95, when a “basic chequing account” — with fees of $3.95 — was requested.

Another TD teller put a Go Public tester in an account with fees of $14.95 — never mentioning the $3.95 account that would have met her stated needs. He also tried to sell a TD Aeroplan credit card, with annual fees of $120, and suggested the tester open two other accounts.

Tellers at three TD branches didn’t try to upsell the testers.

Tellers now called ‘front-line advisers’

One manager pointed out that tellers are no longer called “customer service reps” — an example, she says, of how far TD has shifted the focus from its customers.

“We’re now called front-line advisers,” says the teller. “That would be funny, if it wasn’t so sad.”

All three TD employees say they’ve considered looking for work elsewhere, but what they want most is for their employer to listen to their concerns — for the sake of its employees, and its customers.

Source:  By Erica Johnson, CBC News Posted: Mar 06, 2017 2:00 AM PT  With files from James Roberts

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Bank of Canada holds benchmark interest rate at 0.5%

The Bank of Canada has kept interest rates unchanged at 0.5%, meeting market expectations.

Following the announcement, the Canadian dollar was rallying a bit against the US dollar, climbing to around $1.337, better than the $1.342 the loonie traded at ahead of the announcement.

The statement indicated that the BoC sees the economy evolving broadly as it expected, with the BoC saying (emphasis ours):

Financial market volatility, reflecting heightened concerns about economic momentum, appears to be abating. Although downside risks remain, the Bank still expects global growth to strengthen this year and next. Recent data indicate that the U.S. expansion remains broadly on track. At the same time, the low level of oil prices will continue to dampen growth in Canada and other energy-producing countries

And while the BoC’s decision Wednesday wasn’t expected to materially change the outlook for markets, it does kick off a busy period for central bank announcements, as the European Central Bank will announce its latest decision tomorrow morning and the Bank of Japan and Federal Reserve will follow next week.

Here’s the full statement from the BoC:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

The global economy is progressing largely as the Bank anticipated in its JanuaryMonetary Policy Report (MPR). Financial market volatility, reflecting heightened concerns about economic momentum, appears to be abating. Although downside risks remain, the Bank still expects global growth to strengthen this year and next. Recent data indicate that the U.S. expansion remains broadly on track. At the same time, the low level of oil prices will continue to dampen growth in Canada and other energy-producing countries.

Prices of oil and other commodities have rebounded in recent weeks. In this context, and in light of shifting expectations for monetary policy in Canada and the United States, the Canadian dollar has appreciated from its recent lows. With these movements, both the price of oil and the exchange rate have averaged close to levels assumed in the January MPR.

Canada’s GDP growth in the fourth quarter was not as weak as expected, but the near-term outlook for the economy remains broadly the same as in January. National employment has held up despite job losses in resource-intensive regions, and household spending continues to underpin domestic demand. Non-energy exports are gathering momentum, particularly in sectors that are sensitive to exchange rate movements. However, overall business investment remains very weak due to retrenchment in the resource sector.

Inflation in Canada is evolving broadly as anticipated. The factors that pushed total CPI inflation up to 2 per cent will likely unwind in the months ahead. Measures of core inflation are at or just below 2 per cent, boosted by the temporary effects of past exchange rate depreciation. Material excess capacity in the Canadian economy will continue to dampen inflation.

An assessment of the impact of the upcoming federal budget’s fiscal measures will be incorporated into the Bank’s April projection. All things considered, the risks to the profile for inflation are roughly balanced. Meanwhile, financial vulnerabilities continue to edge higher, in part due to regional shifts in activity associated with the structural adjustment underway in Canada’s economy. The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.

Source: Business Insider – 

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BREAKING NEWS: Bank of Canada holds key interest rate steady at 0.5%

Bank of Canada Governor Stephen Poloz twice cut the central bank's benchmark interest rate year in an attempt to stimulate the economy.

The Bank of Canada today maintained its benchmark interest rate at 0.5 per cent.

The rate affects the saving and borrowing rates that Canadians get from their lending institutions banks. The central bank cut its rate twice last year in an attempt to stimulate the economy.

Headed into the decision, economists were evenly split as to whether the bank would cut again or stand pat.

More to come


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TD cuts prime rate in wake of Bank of Canada move

Toronto-Dominion Bank was the first of the big banks to decrease its prime lending rate after the Bank of Canada cut its key interest rate cut on Wednesday in response to slower-than-expected economic activity this year.

The lender lowered its prime rate to 2.75 per cent, down a tenth of a percentage point, marking a far shallower reduction than the central bank’s quarter point cut.

When the Bank of Canada cut its key rate in January, also by a quarter point, the big banks were slow in responding to the reduction. They then took a public drubbing over their refusal to follow the central bank in lock-step, lowering their rates by just 0.15 percentage points.

Should other banks follow TD’s lead, they will have lowered their prime rates by a total of 0.25 percentage points this year, or half the Bank of Canada’s total rate reduction of 0.5 percentage points.

However, some observers have pointed out that the Bank of Canada may not mind the muted response from banks.

House prices have soared, raising concerns among central bankers that prices may be overvalued by as much as 30 per cent. As well, Canadian indebtedness has risen to new heights, making consumers vulnerable to rising unemployment levels or an eventual backup in borrowing costs.

For the banks themselves, the response to the Bank of Canada comes as they attempt to shore up profits driven by their lending activities. Since the banks make money by lending at higher rates than their own borrowing costs, substantially lower prime rates can compress their margins.

Source: DAVID BERMAN The Globe and Mail Published Wednesday, Jul. 15, 2015 11:14AM EDT