How Low Can Interest Rates Go? Credit Unions Gear Up to Compete with the Big Banks

Rate wars have been something that the banks are constantly engaged in. The mortgage market is a fierce and competitive environment and one lender promoting even a slightly lower rate than the others can lead to them snatching up market share until they cannot sustain the promotion any more, or until another lender comes up with something more comparable and competitive.

As you know, in January the BOC began again cutting already historically low interest rates. While many banks followed suit, announcing reductions in their interest rates, one credit union has stepped up to the plate, and is now poised to capture some market share.

According to a recent article in the Mortgage Brokers News “Credit Union Enters the Rate War,” Ontario’s largest credit union, Meridian Credit Union announced that they would be lowering their year fixed mortgage rate. Not only did they lower it, but they lowered it down to 2.99%, which is a rate comparable to that being offered by the big 5 Canadian banks.

Meridian really did see an opportunity and seized the moment because, as the Mortgage Brokers News article points out, in the past, when the BOC would announce a .25% rate drop, the banks would follow suit and drop their prime lending rate by .25%.

In this instance, on Jan 21, 2015, the BOC dropped the national interest rate by .25%, however many of the banks only reduced their prime lending rate by .15%. What this did was create space for a B lender to step in and compete on price – which Meridian has been smart enough to do.

It will be interesting to see in next month’s Teranet National Bank House Price Index if the cut to interest rate has had any effect on the Canadian housing market. Some, including the IMF, have indicated that the Canadian housing market is headed for a cool down. Meanwhile other major publications have written on the subject of Canadians carrying record levels of personal debt which could lead to economic problems in the future. Does the BOC further dropping interest rates help to resolve some of these challenges?

Whatever the BOC’s underlying reason for the rate drop, it is nice to see that the indirect side effect was a leveling of the playing field to give some B lenders a chance to compete for some of that tasty A customer pie.

For more about how Purview For Lenders can help you garner a bigger piece of that customer pie, or for more on recent Canadian market numbers, please contact us today by calling 1.855.787.8439.