One of the most prominent changes has been the dramatic decrease in posted rates, which reached an all-time low in March 2009.
The average five-year posted rate stood at 3.97 percent in early 2009, down from 6.14 percent a year earlier. This was the lowest rate of all time, driven largely by falling bond yields, decreased costs for lenders, and increased competition among lenders. The Bank of Canada also reduced its overnight lending rate from 3.00 percent to 0.25 percent in April 2009, further contributing to the lower posted rate.
As a result of the low posted rates, many Canadians took advantage of the opportunity to refinance their home loans or purchase new homes. Refinancing allowed homeowners to reduce their monthly mortgage payments, while purchasing became more accessible for those who could not afford higher interest rates. This led to increased activity in the housing market, as many Canadians were able to take advantage of these attractive rates.
The decrease in interest rates also resulted in increased risk for lenders, as more borrowers were likely to default on their mortgages. Lower interest rates meant that lenders had to rely more heavily on fees, rather than interest, to make a profit. This put lenders in a difficult position, as the fees they could charge were limited by government regulations.
The decrease in posted rates has had major implications for the entire Canadian mortgage market. With low interest rates, many Canadians have been able to take advantage of the opportunity to purchase or refinance their homes, leading to increased activity in the housing market. At the same time, lenders must now depend more heavily on fees, making their profit margins slimmer. As a result, both borrowers and lenders will have to adjust to the current market conditions in order to succeed.
This article was contributed on Oct 15, 2023
