Most of Canada’s major banks have moved to cut their fixed mortgage rates, a response to their own lowered borrowing rates on the bond market.

Since the weekend, Toronto-Dominion, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank have all slashed their posted five-year fixed mortgage rate to 5.29 per cent. That’s an across-the-board cut of 0.10 percentage points.

The posted mortgage rates at the Royal Bank of Canada and Bank of Nova Scotia already sat at 5.29 per cent.

The rate cuts are in reaction to declining borrowing costs at the banks themselves. When banks lend money to consumers for mortgages, the funds generally come from money the banks raise via bonds sold to investors. The banks make money by managing the spread between those two rates.

The yield on benchmark five-year government of Canada bonds has dropped significantly in the last month, from 2.26 per cent on Sept. 16 to 1.87 per cent on Oct. 8.

“Rates went down because investors were demanding less of a return for safe investments, and banks are starting to pass that on,” said Toronto mortgage lender Marcus Tzaferis of Morcan Direct Inc.

“Until recently, banks were shoring up their balance sheets and enjoying the difference between these spreads.”

Up until six months ago, fixed rates were popular, Tzaferis said, and banks pushed people into them, hoping to lock in the profits to be had in the spread between what they paid to borrow and what they earned to lend.

Banks are also lowering the rate to try and spur new buyers to enter the home market. The number of home buyers dropped four straight months before an uptick in August, data from the Canadian Real Estate Association shows.

The Bank of Canada’s overnight lending rate, which it started to hike in June after being frozen at zero for nearly a year, has more influence on short-term lending rates and variable-rate mortgages than it does on fixed-rate products.

The banks do offer special rates on mortgage products for certain customers, with many currently below the posted rates. But such rates can be changed, withdrawn or extended at any time, the banks say.

“For the medium term, we’re going to see low fixed-rates and minimal movement on variable rates,” Tzaferis said.

cbc.ca news story Wednesday Oct 13, 2010Kevin Irvine of Invis, Mortgage Broker – Kelowna,Vernon, Penticton, Okanagan, British Columbia, Canada