Yes, I am afraid so. Daily I am receiving emails about products that are been discontinued and tightening of credit guidelines. Mortgages that I could get approved 6 months ago are now been declined. Fixed interest rates are increasing; the discount from prime on the variable has disappeared. Today, four banks have informed me that their variable rate is now prime plus 1% . CIBC broker division has totally discontinued their variable rate products.

The reason for this is that the banks own costs of funding is increasing, the banks are beginning to pass this cost on to their clients through higher lending rates in an effort to preserve profitability. This trend, in addition to a broader slowdown in the pace of lending due to higher risks has all contributed to higher interest rates.

FYI – The Big Five’s Canadian bank’s retail businesses, earned $2.73-billion in the last quarter.
“There’s no doubt the credit crunch has already squeezed profits, says Chris Hodgson, head of Canadian banking at Bank of Nova Scotia. The delicate balance, he explains, is how to pass on some of the banks’ pain via higher rates on mortgages and loans without squeezing the consumer too much and slowing things down further.”

The credit crunch means that banks are paying significantly more to obtain money to lend to customers.
The premium that banks now pay because of the liquidity crunch is now more than 100 basis points (1%) on five-year variable-rate mortgages, compared with about 5 basis (0.05%) points a year ago, Mr. Hodgson said. So far, “we’ve held the line, we haven’t really passed that on to consumers.”

Many of you have variable rate mortgages, you maybe wondering if this is the time to lock in. The information I am getting from economist is that we could see prime rate decreasing by 1% in the coming year, this could be the reason why lenders are now offering prime plus 1% on variable rate mortgages. Your bank would probably love you to lock into a fixed rate, do you think this is a good idea, when you are currently receiving prime (4.75%) less ……….?

The Bank of Canada’s next scheduled date for announcing the overnight rate target is 21 October 2008.

We should certainly count our blessings, but we should also make our blessings count.”
– Neil A. Maxwell

Wishing you all the best this Thanksgiving!