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Robert McLister: The offer is 101 basis points below Canada's key interest rate of 7.2%, but the bank appears reluctant to offer this huge discount
Published on May 3, 2024 • Last updated 14 hours ago • 5 minutes reading
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TD Bank offers an adjustable rate mortgage that represents the best uninsured variable discount generally available as of 2021. Photo by Joe Raedle/Getty Images
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The second largest bank in the country just launched an incredible variable mortgage rate. But stay calm. Apparently you don't want everyone to know about it.
Toronto-Dominion Bank's new offer is 6.19 percent for uninsured mortgages. This corresponds to the Canadian key interest rate (7.20 percent) minus a whopping discount of 101 basis points (bps).
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Side note: Above I referenced the Bank of Canada's key interest rate simply because that's the standard. However, TD has its own “Mortgage Prime Rate” that is 15 basis points higher than virtually all others. TD arbitrarily raised its base mortgage rate in 2016, even though the Bank of Canada hadn't raised rates at the time – because who needs central bank rate hikes when you've got mummy?
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How good is this offer?
TD's deal is hot – at least at a variable interest rate. It's a cool 54 bps below the next one lowest rate from a nationally advertising variable rate lender. And it's the best universally available variable discount for the uninsured since 2021.
“From time to time we offer special rates to attract more customers,” a TD spokesperson said via email. “In this case, we are offering a limited-time, two-week, non-insured special to kick off the spring market.”
And then there is the icing on the cake. Like most major banks, TD is throwing cash at mortgage customers — in this case, bonuses worth up to $4,100, depending on the size of your mortgage. In terms of cash value, this means that the interest rate is reduced by an additional 10 basis points for five years.
This promotion is valid until the end of the day, May 14th. There's no telling whether the bank will extend the sale, but it's a clear harbinger of better variable discounts in the future.
Confusion guaranteed
TD confirms that the offer is available through both mortgage brokers and TD mortgage specialists.
The question is why three days after this fare sale began, this excellent fare is not available at TDs website?
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I asked the company directly through official media channels why, but they declined to respond. And if a bank avoids such a simple question, there's a good chance they're trying to keep something secret.
A TD insider speaking on background told me the bank may want to keep the interest rate low given the potential heat wave from Ottawa. Policymakers don't want anything to fuel the housing market and debt. That's especially true when inflation is so far way above target, borrowers are more indebted than a Cirque du Soleil act, and the housing supply is woefully undersupplied (and, incidentally, overstretched, thanks to our lax immigration watchdogs).
Aside from trying to trick unsuspecting customers into paying higher interest rates than informed customers, there are few other reasons why a bank would hide such an astonishing interest rate from the public.
As a side note, I randomly visited two TD mortgage specialists and one told me she could get me the rate “as an exception” and another said the rate didn't exist. Apparently the bank's retail representatives don't all agree.
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If you want more security and potentially an even better discount – since some brokers use their commissions for “down rates” – you may want to try a TD approved broker instead.
Regardless, in the age of 24/7 media and tweetstorms, anyone can find out what you are doing as a bank, including regulators. Maybe it's time for banks to ditch the masquerade and embrace transparency – not least good for PR.
Of course, TD isn't the only one holding back on its best rates. All the big banks play these games – refusing to publicly disclose their lowest interest rates – because it's more profitable for them that way. It really gets on people's nerves, but that's how banks work in this country.
Payment flexibility
TD's variable allows customers to lock in their payments to protect their budget from possible rising interest rates. The fixed payment also speeds up the payoff of your mortgage when interest rates fall because a larger portion of each payment goes toward principal.
But many don't want a fixed payment in a falling interest rate environment. As the Bank of Canada begins lowering interest rates, which is expected to begin in July, many customers will prefer an adjustable-rate mortgage (ARM) instead. This is where your payment goes down if the prime rate goes down.
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Luckily TD allows it variable Require borrowers to request a payment reduction if it does not extend their originally planned repayment. So TD essentially gives you the best of both worlds – protection from the chance from rising interest rates and the possibility of accelerating your payback or Lower your payment when interest rates go down.
Hybrid option
Do you have 20 percent equity and aren't exactly excited about the roller coaster ride with variable interest rates? TD’s “FlexLine” option allows you to split your borrowing into part fixed and part variable.
For example, a FlexLine borrower could choose half in a five-year variable rate of 6.19 percent (TD Mortgage Prime minus 1.16 percentage points) and the other half in a five-year fixed rate in the low five percent range.
This allows you to hedge your interest rate risk in the less likely event that variable interest rates average higher than fixed interest rates over the next five years. And by “less likely” I mean the bond market futures prices that traders use for interest rate speculation and hedging purposes.
If you have a variable interest rate on part of the mortgage, the prepayment penalties will also be reduced if you have to terminate the mortgage early.
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As the first major installment sale in the spring, TD's variable special offer throws a bang on the spring housing market. No doubt it will encourage other banks to sharpen their pencils, particularly Royal Bank of Canada, which is in a heated battle with TD for the title of Canada's largest mortgage lender.
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The conclusion is that TD serves variable-rate borrowers well here, and when banks compete, consumers win. Now let's grab our financial popcorn and see if a potential interest rate war and the Bank of Canada's magic interest rate squeeze give real estate prices an adrenaline rush.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X below @RobMcLister.
Click here to see the lowest nationwide mortgage rates in Canada today
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