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RBC rate cut small, but could set trend

TORONTO - A move by Royal Bank to slightly decrease a number of fixed mortgage rates may prompt other banks to follow suit, but such changes shouldn't be a major consideration for home buyers, mortgage experts said Monday.

"From a mortgage broker's perspective and probably from a lot of homeowners' perspective, the real question is not necessarily interest rates," said Jason Scott, a mortgage broker with The Mortgage Group in Edmonton.

"It's got more to do with what the finance minister and the department of finance will do vis-a-vis making it harder to qualify for a mortgage if they don't like the fact that rates are low and they're concerned about a possible housing bubble."

RBC (TSX:RY) quietly lowered its rates on several fixed-rate mortgages by 10 basis points over the weekend, bringing its five-year closed rate to 3.69 per cent.

It was a small drop to the discounted rate offered by the bank until the end of the month, but one that went against the general trend of rising rates. It also came about two weeks after Bank of Canada governor Stephen Poloz spoke in an interview about the likelihood of rising long-term fixed rates.

To Scott, however, a small change in rates isn't likely to have a huge impact on buyers at a time when rates are already so low, with fixed-rate, five-year mortgages (a popular choice for homeowners) hovering around about 3.5 per cent and variable mortgage rates (a floating rate based on prime) around 2.5 per cent.

"At the end of the day, whether rates move a decimal one per cent or a quarter of a per cent, the reality is that from a historical perspective we're in a low-rate environment," said Scott.

Andrew Bodnar, a real estate salesman with Re/Max Condos Plus Corp. brokerage in Toronto, said the government already tightened regulations around qualifications for mortgages earlier this year, adding he would be surprised to see any dramatic moves in interest rates.

"It's fairly steady right now and there are natural forces of supply and demand going on," Bodnar said.

"Canadians are pretty conservative. Most people don't have a new car with a big payment and they're also looking to buy a house that's well outside their bounds."

While a push to lower rates by other big lenders is possible, especially as they compete for mortgages going into the important spring real estate season, the weekend change simply brings RBC closer to those already being offered by some other lenders.

Scotiabank (TSX:BNS) already has a lower discounted rate of 3.59 per cent for fixed, five-year mortgages, while CIBC (TSX:CM) and TD Bank (TSX:TD) are at 3.79 per cent and the Bank of Montreal (TSX:BMO) is at 3.89 per cent.

Other mortgage lenders, such as Dominion Lending Centres, offer a rate of 3.25, according to RateHub.ca.

RBC said in an email Monday that rates were lowered to match competitor pricing.

"Competitors have been pricing at lower rates for several weeks and this rate change now puts us in line," the bank said.

Any fallout from the change is also unlikely to have the effect major cuts have had in a past — like when BMO lowered its five-year rate to 2.99 per cent and created a price war.

And in the end, Scott said, homeowners trying to get a sense of how rates will impact their mortgage payments would be better served by keeping an eye on the strength of the U.S. economy and changes in bond markets.

"In the grand scheme of things, minor variations of interest rates are not that critical," he said. "What's more important is getting the right mortgage for that person's situation."

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