There was a lot of talk in January about many of the major banks in Canada trying to beat each other out for the best mortgage deal. BMO was the first bank to start offering hugely discounted rates and packages, but they had a two-week stipulation for running the promotion. When many of the other banks heard about the offer, they too started offering discount packages; but coming after BMO’s offer, they needed some leverage. So they said they were running their offers for longer, sometimes weeks longer. So why all the sudden discounts and competition? It’s easy really. At a time when people are trying to lower their total amount of debt, including a first and 2nd mortgage, banks still need to make money. And sometimes, they have to entice customers to do so.
Unfortunately for those customers that were going to get in on the deals towards the end of the time limit, many of the big promotions have closed early. BMO officially offered the deal on their 25-year amortization mortgages for two weeks only, while TD and RBC said that theirs would both be in place until February 29 (although their deals were on 30-year amortization mortgages.) BMO seems to have lived up to their end of the agreement and even though you can’t get their discounted mortgages anymore, they did seem to be around for as long as BMO said they would. The same cannot be said however, for TD and RBC.
So why are banks pulling out of their deals?
It’s simple, for the same reason they started offering them – to make money. After BMO started to offer such great discounts, other lenders thought that they had to follow suit just to stay competitive and not lose customers to this new offer. However, the plan didn’t work. At the beginning of February, after BMO’s deal was over and RBC and TD were still looking at a month of giving customers discounts, Government of Canada bond yields also went up 17 basis points. That means that with the discounted mortgages, banks are now paying more to borrow money, and they’re making less off of their customers that are borrowing from them. Not a good situation for the banks, and that’s why RBC and TD have both pulled their offers.
David McKay, group head of Canadian banking at RBC said in a statement to the Globe and Mail, “The rates coming down were in response to a very aggressive move by a competitor and a need for us to defend our client base, and to defend our business. We didn’t lead it there, but we felt compelled to follow.”
So the only question left to ask Canadian consumers is – are you angry? Are you angry that two of the biggest banks in Canada promised their customers something, only to yank it away? Do you think that we’re really the ones that should pay for them being so easily led into something they never wanted to do in the first place?
