Borrowers need to watch the rate on Variable Rate Mortgages

	Borrowers have to watch moving-target prime rate; TD Bank raises prime on variable-rate mortgages, and other financial institutions expected to follow
	November 3rd, 2016 • Toronto Star
	Author: Tess Kalinowski Toronto Star -Tess Kalinowski
	Consumers need to be increasingly vigilant about their loan choices in the wake of the TD Bank's decision to raise its prime rate on variable-rate mortgages, an Ontario mortgage broker said. But new federal rules introduced last month, which require lenders to more rigorously stress-test fixed-rate mortgages, will open some financial choices for consumers, said Nicholas L'Ecuyer, CEO and founder of Mortgage Wellness in Barrie, Ont. For 15 months, the major Canadian banks offered the same prime rate. Now TD has essentially made that rate a moving target that borrowers will have to watch, he cautioned. Many variable-rate consumers choose a mortgage product based on the prime rate offered, plus or minus a certain per cent. For a long time, consumers would just look at that "plus or minus" number to determine whether a variable mortgage product was attractive. "Now, with one institution offering one prime and another institution offering another prime, you no longer just have to pay attention to the variance on prime, but the prime rate as well," he said. "It means consumers need to be more conscious of what the true price is," said L'Ecuyer. Other financial institutions are, however, expected to follow TD, which announced on Tuesday it was raising its variable mortgage prime rate to 2.85 per cent from 2.7 per cent - the first increase since July 2015. The increase isn't expected to change homeowners' payments, but it will mean a greater portion of those payments goes toward interest. L'Ecuyer doesn't expect the new rate to push consumers out of the housing market beyond those who are challenged to qualify under Ottawa's recently announced new mortgage rules. Quite the opposite, he said. "It opens up choice for clients." Before the new rules, a fixed-rate mortgage consumer had to qualify at the lender's rate. Since Oct. 17, however, all insured mortgage consumers - variable and fixed borrowers - have to qualify at the five-year Bank of Canadafixed rate of 4.64 per cent. "Now, if you qualify at that benchmark rate, you have a choice. You (can) take one-year, two-year, three-year or five-year variable rate - you have to qualify anyway," he said. Some of the new rules announced by federal Finance Minister Bill Morneau in early October take effect on Nov. 30. That's when mortgage lenders will be required to take on more risk for loan losses on insured mortgages that default. Most approve of new mortgage rules While they may be pushing some buyers out of the housing market, Ottawa's tougher rules for people who want to qualify for some mortgages are a good idea, according to 63 per cent of Canadians. A Forum Research poll of 1,437 Canadians found that only 18 per cent of respondents disapproved of the new tighter lending regulations and the elimination of a tax exemption for offshore real-estate buyers. The highest approval levels - 68 per cent - were among respondents 35 to 44 years old. Sixty-eight per cent of men approved, compared to 59 per cent of women. Higher-income earners also had higher approval levels. British Columbia had the highest approval level among the provinces, with 75 per cent liking the new measures. The new rules were least popular in Atlantic Canada, at 56 per cent. The interactive telephone poll was conducted on Oct. 11 and 12, about a week after federal Finance Minister Bill Morneau announced the new mortgage rules. The results are considered accurate within 3 per cent, 19 times out of 20. -Tess Kalinowski