TD Bank cuts posted mortgage rate to reflect lower rate environment

TD Bank lowered its posted five-year fixed mortgage rate on Tuesday to narrow the gap between the benchmark and the special rates it offers customers.

Banks maintain an official posted rate, but also offer lower rates either directly or through brokers and other channels that better reflect market conditions.

TD cut its five-year posted rate for fixed-rate mortgages from 5.34 per cent to 4.99 per cent, while the bank's customer, or "special" rate stands at 3.09 per cent, or 3.11 per cent with annual carrying fees included.

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"Based on current market conditions, lower funding costs have led to a growing variance in customer rates versus posted rates," said bank spokeswoman Ana Aujla by email.

"This rate decrease aligns TD's 5-year fixed posted rate more closely with current customer rates."

The posted rate is significant for the federal mortgage stress test, which is based on the posted rates at the big Canadian banks. The posted rate is also used for calculating mortgage penalties.

Sherry Cooper, chief economist of Dominion Lending Centres, said the TD decrease was welcome news, even if it didn't go far enough, as posted rates by the big banks are making it harder for people to qualify for a mortgage.

"By keeping posted rates too high, the Big-Six banks have inflated the qualifying rate, making it more difficult than necessary to pass the stress test to get a mortgage."

She noted that if some other big banks follow TD, it could push the qualifying rate for the new B-20 mortgage rules below five per cent for the first time since they were implemented in January 2018.

Posted rates at Canada's other big banks remain somewhat elevated, including several at 5.19 per cent after a cut last year, but they often follow one another in mortgage rate movements.

Cooper noted that if the stress test rate dropped from its current 5.19 per cent to 4.99 per cent it would require roughly 1.8 per cent less income to qualify for the average Canadian home price.

TD's rate drop comes after the five-year government bond yield, which helps determine mortgage rates, has declined from 1.70 per cent in mid-December to 1.34 Monday, in part on economic fears around the coronavirus.

The rate also saw a steady decline for much of last year before a late rebound. The five-year bond yield dropped from 1.93 per cent in January last year to 1.13 in September on several factors including U.S. Federal Reserve rate cuts, pushing mortgage rates lower and helping boost real estate sales in the latter half of the year.