Canadian Bank Lending Rates

Measures need to be taken to ensure that banks pass on savings when prime interest rates are lowered. It is my understanding that the Bank of Canada lowers the prime interest rate in part to encourage lending and make borrowing less expensive for consumers and businesses. The prime rate is now at an historic low of 0.5%! In my experience, the banks are changing the relationships between mortgage products and their own internal rates to get around the lowering interest rates.

As an example, my bank has a prime rate of 2.5% - a value that is 2.0% higher than the Bank of Canada rate. My variable rate mortgage is up for renewal next month. Currently, I am paying a rate of 3.25%. This is all well and good, but the new mortgage products that are available now do not match that rate, even though the Bank of Canada prime rate has been reduced! The new mortgage plans all have a +0.8%, or +1.0%, or higher adjustments to the bank's internal prime rate. I was told by my banking officer that all banks are performing the same adjustments. This is not fair. The lowest variable rate I can now obtain is 3.3% or 3.5%. Why should my rates go up at all when the prime rate drops? I realise that many may say that it is only a difference of 0.05% or 0.25%, but with house prices still at many times an average income, it can have a large effect on post-mortgage expendable income.

If all the banks are acting together with changes to their mortgage products, it is collusion and they are effectively a banking cartel instead of doing business in a free market economy. I hope this kind of practice is not one of the reasons why the Canadian banking industry is the healthiest in the world. To me, it just seems like a profit-grab, kind of like the Canadian banking fees, except this is more blatant.

If you consider this important, please email the prime minister (pm@pm.gc.ca, HarpeS@parl.gc.ca), the minister of finance (FlaheJ@parl.gc.ca), and your member of parliament (do searches of the government directory at the government of Canada website.).