Mortgage rate discounts

[Rehan]

Yeah, yeah...yet another thread about mortgages. :razz:

I'm wondering about the discounts that banks and mortgage brokers offer on the posted rates. For example, http://www.mortgagesincanada.com/rates.asp currently shows a discount of 1.66% on the 5 year fixed rate and a 0.90% discount on the variable rate. (You can see a brief history of the rates at http://web.archive.org/web/*/http://www.mortgagesincanada.com/rates.asp )

I'm renewing my mortgage next week, and it's time again to choose between variable or fixed. Last time, I went with a variable rate mortgage based on the research that stated that over the long term a VRM is cheaper (read that argument in a nutshell here (http://www.lendingmax.ca/artman/publish/Fixed_rate_mortgage_or_variable_rate_mortgage.php) ). But that research study didn't take into account any discount rates and was based on just the posted rates. Once you factor in the discount rates, it's a whole new ball game.


So... back to what I was wondering. How are the discounts determined? Why is the discount for the 5 year fixed rate so much more than the discount for the variable rate?


(FWIW, my discount variable rate is currently prime minus 0.85% and I have an offer from the bank to renew at that same rate. But a discount of 1.6% or 1.7% on the 5 year fixed rate looks very tempting.)

[sunnybono]

Yeah, yeah...yet another thread about mortgages. :razz:

I'm wondering about the discounts that banks and mortgage brokers offer on the posted rates. For example, http://www.mortgagesincanada.com/rates.asp currently shows a discount of 1.66% on the 5 year fixed rate and a 0.90% discount on the variable rate. (You can see a brief history of the rates at http://web.archive.org/web/*/http://www.mortgagesincanada.com/rates.asp )

I'm renewing my mortgage next week, and it's time again to choose between variable or fixed. Last time, I went with a variable rate mortgage based on the research that stated that over the long term a VRM is cheaper (read that argument in a nutshell here (http://www.lendingmax.ca/artman/publish/Fixed_rate_mortgage_or_variable_rate_mortgage.php) ). But that research study didn't take into account any discount rates and was based on just the posted rates. Once you factor in the discount rates, it's a whole new ball game.


So... back to what I was wondering. How are the discounts determined? Why is the discount for the 5 year fixed rate so much more than the discount for the variable rate?


(FWIW, my discount variable rate is currently prime minus 0.85% and I have an offer from the bank to renew at that same rate. But a discount of 1.6% or 1.7% on the 5 year fixed rate looks very tempting.)

WOW. I would like to know which FI is giving more than 1.5% discount on a 5 yr term. It's been 2 years since I left the bank as a Branch Manager, and 1.5 discount was the max, even for employees!!! I'm wandering if this advert is to just lure the consumer in!!!!

sk

[nerd]

Rate Sheet:
http://rapidshare.com/files/23316176/2007-03-14_rate_sheet.pdf.html

[jvangilst]

Sure the big 5 are offering 6.5% on a 5yr fixed rate, but then you have smaller banks like pcfinancial offering 5.1% on a 5yr fixed.

[bread1230]

1.6% or 1.7% off post rate of a big bank, it is not so low. I believe fixed rate can be as low as 4.95% now and variable rate can be P-1%.

Yeah, yeah...yet another thread about mortgages. :razz:

I'm wondering about the discounts that banks and mortgage brokers offer on the posted rates. For example, http://www.mortgagesincanada.com/rates.asp currently shows a discount of 1.66% on the 5 year fixed rate and a 0.90% discount on the variable rate. (You can see a brief history of the rates at http://web.archive.org/web/*/http://www.mortgagesincanada.com/rates.asp )

I'm renewing my mortgage next week, and it's time again to choose between variable or fixed. Last time, I went with a variable rate mortgage based on the research that stated that over the long term a VRM is cheaper (read that argument in a nutshell here (http://www.lendingmax.ca/artman/publish/Fixed_rate_mortgage_or_variable_rate_mortgage.php) ). But that research study didn't take into account any discount rates and was based on just the posted rates. Once you factor in the discount rates, it's a whole new ball game.


So... back to what I was wondering. How are the discounts determined? Why is the discount for the 5 year fixed rate so much more than the discount for the variable rate?


(FWIW, my discount variable rate is currently prime minus 0.85% and I have an offer from the bank to renew at that same rate. But a discount of 1.6% or 1.7% on the 5 year fixed rate looks very tempting.)

[Rehan]

1.6% or 1.7% off post rate of a big bank, it is not so low. I believe fixed rate can be as low as 4.95% now and variable rate can be P-1%. Yup, there seem to be lots of people getting such rates. But back to my fixed rate vs. variable rate questions:


How are the discounts determined (i.e., what's the financial math behind it all) ? Why is the discount for the 5 year fixed rate so much more than the discount for the variable rate?

[iluvmikeharris]

Why is the discount for the 5 year fixed rate so much more than the discount for the variable rate?

They play the negotiation game with the fixed rates because they can, especially with existing customers at renewal that they try to put the screws to by sending out renewal offers at posted rates.

The rate 'calculation' is more set on the variable products since they float at a rate relative to prime, and the agressiveness of that discount varies on the other terms of the product (right to lock in at discounted rates, fully vs partially open, etc.). They call it a discount off of their prime rate, put it's really a premium on top of the Bank of Canada Prime rate.

This lender makes both their posted and discounted rates for FIXED terms available online (they should rename the posted rate column "clueless people please read this one"):

http://www.mcapdirect.com/English/Rates/index.asp