Scotiabank lowers its fixed five-year mortgage rate to 2.97%

It’s the lowest rate among the big banks

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TORONTO – Scotiabank (TSX:BNS) is causing some new waves in the mortgage rate market after lowering its special fixed five-year rate to 2.97 per cent, the lowest among the big banks.

The rate is effective until June 7, and comes amid growing competition for mortgages that have pushed rates down in recent months.

It’s also below the 2.99 per cent level that drew sharp criticism from Ottawa in the past over fears that such rates would trigger a damaging housing bubble.

Finance Minister Joe Oliver has said in the past that unlike his predecessor Jim Flaherty, he had no plans to wade into the debate over the setting of mortgage rates, calling it a “private” decision by lenders.

But he has signalled he would keep an eye on the changes, noting that Ottawa has intervened in the past.

Investors Group recently offered a 1.99 per cent rate for a 36-month closed, variable-rate mortgage, but Scotiabank is the first of the big banks to push its fixed rate down below three per cent in recent months.

Scotiabank is also offering a five-year variable rate of 2.47 per cent.

3 comments on “Scotiabank lowers its fixed five-year mortgage rate to 2.97%

  1. Canadians are clueless on the real long term costs, expenses, fees, taxes when owning their primary residence. This cheap Scotia Bank 2.97% 5 year, fixed rate mortgage rate is a small part of it.

    Assuming a 3.00% average mortgage rate over 25 years and a house is paid off in that time, for every extra $100,000 mortgage balance borrowed, it will cost $478 per month which includes principal and interest.

    Over 25 years, it will cost $43,400 in more total interest per $100,000 mortgage balance borrowed. So the difference between a $350,000 mortgage versus a $650,000 mortgage is $130,200 in extra interest costs.

    The problem is most Canadians don’t look at the extra property taxes, utilities, H.S.T., home insurance, CMHC insurance premiums, repairs and maintenance, lawyer fees, land transfer taxes, real estate commission etc. for that extra $350,000.

    A good estimate and benchmark is a 2.00% to 2.50% average cost annually for all these costs, taxes, fees, expenses and about an average 3.50% to 4.00% average annual increase to these amounts.

    This means that in 25 years, the extra cost that is non-mortgage payments and non-mortgage interest related is $378,978 for $350,000 more primary residence.

    Even if you take the lower average annual expenses, taxes, fees, costs, it would still total $282,192 for $350,000 more primary residence. Another very important financial impact most Canadians don’t take into account is the lost compound interest at say 4.00% currently available by maximizing TFSA’s, RRSP’s with longer term provincial strip bonds.

    If you add that after 25 years, it is a lot of lost compound interest, financial opportunity of which makes it double, a total of $282,192 to $378,978 over 25 years.

    This means a total financial cost of $564,384 to $757,956. Since this is all contributed and invested in TFSA’s, it is all income tax free and is equivalent to $1.128 million to $1.515 million of taxable working income.

    See why borrowing money is so cheap! It is because everything else related to buying, owing, repairing and maintaining a primary residence is so expensive and getting much more expensive everyday, month, year.

    Reply

  2. If other adult family members invested the same $478 per month, per $100,000 over 300 months, 25 years at 4.00% in their TFSA’s instead of paying off a $350,000 mortgage, it would worth $854,091.

    This is now getting into real money here. This $350,000 extra mortgage balance and house is going to cost them as much as $1,610,000 in 25 years.
    If they use RRSP’s and receive a 30% income tax refund per year, it is much higher at $1,865,000 in 25 years. All this to borrow $350,000 more money to buy a bigger or more expensive primary residence.

    No wonder most Canadians are not going to have a strong financial, retirement foundation and be in debt with little to no savings having all if not most all their wealth and net worth in a illiquid, expensive asset to sell.

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  3. Correction to my last 2 posts. I am comparing the difference of a $350,000 primary residence to a $700,000 primary residence. Sorry for any confusion or misunderstanding that this may of occurred.

    Also, the total extra mortgage interest cost is not $130,200 but $151,900 over 25 years for a $350,000 mortgage paid off fully.

    Reply

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