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EQ New GIC Offering
May 5, 2021
8:44 am
Norman1
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dougjp reported that EQ Bank doesn't offer joint GIC's yet.

Apparently, a GIC purchased with funds from a joint EQ Bank savings account is owned by only one of the joint savings account owners.

May 5, 2021
9:02 am
Alexandra
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Rick said
YES!!! 3,4 & 5 year rates raised Star Wars day

2021-05-04

3-year 1.60
4-year 1.85
5-year 2.10
Never thought I'd be happy to see 5 years at 2.1 again.
Hopefully others follow before my GICs come due in Junesf-laugh  

I wonder if EQ is trying to get the jump on the possibility of bank rate hikes soon. I am going to lock in some funds with them this month at the 1.55% for 3 months. See where it goes from there. I'm hesitant right now into locking in for 5yrs at 2.1%. The rep said I have until 27 May to get that 3 month term.

May 5, 2021
9:17 am
HermanH
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Alexandra said The rep said I have until 27 May to get that 3 month term.

Be careful, the TFSA 2.3% 3-mo offer must be purchased before May 26. It would be reasonable to see EQ change all their rates on the same day. You may not wish to hold out to the last day of the offer.

Rick said
5-year 2.10
Never thought I'd be happy to see 5 years at 2.1 again.
Hopefully others follow before my GICs come due in Junesf-laugh  

If 2.1% satisfies your threshold, what holds you back from the 7-yr 2.1% GIC or 10-yr 2.4% GIC?

May 5, 2021
10:12 am
Alexandra
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Alexandra said

I wonder if EQ is trying to get the jump on the possibility of bank rate hikes soon. I am going to lock in some funds with them this month at the 1.55% for 3 months. See where it goes from there. I'm hesitant right now into locking in for 5yrs at 2.1%. The rep said I have until 27 May to get that 3 month term.  

Sorry, I meant the three month rate is at 1.5% not 1.55%. I will be purchasing one this month. Transfer from Motus on the 7th.

May 5, 2021
9:04 pm
Loonie
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I received an email from EQ today advertising a five year closed fixed rate mortgage at 1.83%.
Undoubtedly not everyone would qualify, but it does call into question, once again, the assertion that GICs and mortgages are somehow matched up and move in synch.

May 5, 2021
9:34 pm
Norman1
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Such rates from an Alt-A lender don't really disprove the link.

I've seen such "interesting" rates before. The actual cost is higher as one won't qualify if one is not willing to pay the premiums to have the mortgage insured. That's right: One won't qualify if one will be putting more than 25% down!

That way, the lender ends up with an insured mortgage that can be flipped to an investment fund or a mortgage backed security pool.

For the short period of time it is held, the mortgage would be funded by HISA money, like that 1¼% money from EQ Bank Savings Plus accounts! sf-laugh

May 5, 2021
11:17 pm
Rick
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HermanH said

If 2.1% satisfies your threshold, what holds you back from the 7-yr 2.1% GIC or 10-yr 2.4% GIC?  

Don't recall saying I had a threshold. It by no means is satisfactory. Just happy to see someone move rates in an upward direction for a change. That rung in my ladder is getting renewed no matter what the rate is. 7 & 10 year rates were few and far between when I started it 30 years ago. My crystal ball says locking in for 10 years @2.4 would be foolish for me. Good chance I won't be alive when it rolls over and pretty sure I'll need to be dipping into it before then. You go ahead though.

May 6, 2021
2:36 am
Loonie
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Norman1 said
Such rates from an Alt-A lender don't really disprove the link.

I've seen such "interesting" rates before. The actual cost is higher as one won't qualify if one is not willing to pay the premiums to have the mortgage insured. That's right: One won't qualify if one will be putting more than 25% down!

That way, the lender ends up with an insured mortgage that can be flipped to an investment fund or a mortgage backed security pool.

For the short period of time it is held, the mortgage would be funded by HISA money, like that 1¼% money from EQ Bank Savings Plus accounts! sf-laugh  

Obviously, there have to be some intervening factors to justify the discrepancy.
That was my point, that it is not as simple as a direct line between mortgages and GICs. You have just shown how GIC funds would not be needed at all.

May 6, 2021
6:23 am
RetirEd
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Just last year, CDIC removed the 5-year limit on insured term deposits. So you can consider longer terms now, if you don't think there's an uptick in rates coming.
RetirEd

May 6, 2021
7:21 am
Norman1
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Loonie said

Obviously, there have to be some intervening factors to justify the discrepancy.
That was my point, that it is not as simple as a direct line between mortgages and GICs. You have just shown how GIC funds would not be needed at all.

I see those kind of high-ratio-only mortgage rates as being fake. Sort of like those advertised airline ticket prices that don't include airport fees or security fees.

Someone eventually has to provide four to five year money to tie up in that mortgage. No-one is going to buy that 1.83% insured mortgage if four to five year government bonds and Big Bank GIC's are paying 2%.

Equitable Bank knows they will be screwed if they can't flip that mortgage off their balance sheet as they need to pay at least 1.9% for four to five year deposits.

May 6, 2021
6:55 pm
Loonie
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I just looked up the cost of mortgage insurance.
https://www.cmhc-schl.gc.ca/en/professionals/industry-innovation-and-leadership/industry-expertise/resources-for-mortgage-professionals/mortgage-loan-insurance-and-premiums

Never having had any (we put down 35% back then), I had no idea it was this expensive. And of course it looms much larger when interest rates are so low.

However, I still find the link between the mortgage and the GIC fuzzy.
I have never heard of a bank loans officer saying to an applicant: "Hang on one moment while I check if we have any GICs to match, and then I'll tell you if we can loan you the money." They will loan it out regardless, if you qualify. The road between mortgage and GIC is not a simple one - as you have shown.

May 7, 2021
9:42 am
Norman1
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The decline is not done directly like that. Instead, the loan will be approved with a lousy rate and the bank will not match better offers. The borrower will then go elsewhere.

Just like when a bank is overflowing with three-year GIC money. It won't stop issuing three-year GIC's that day. It will lower the rate offered and buyers will go elsewhere.

May 7, 2021
5:12 pm
Rick
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Oaken has raised the 5 year to 2.1 as well.
Hopefully that will spur a few others.

May 8, 2021
12:38 am
Loonie
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Norman1 said
The decline is not done directly like that. Instead, the loan will be approved with a lousy rate and the bank will not match better offers. The borrower will then go elsewhere.

Just like when a bank is overflowing with three-year GIC money. It won't stop issuing three-year GIC's that day. It will lower the rate offered and buyers will go elsewhere.  

Again, I never did this myself, but I am under the impression that the prudent first time buyer will get pre-approval for X dollars at Y% etc which is usually good for a few months or so. How can the bank know it is going to have a GIC to match the mortgage down the road?

May 8, 2021
5:10 am
savemoresaveoften
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Loonie said

Again, I never did this myself, but I am under the impression that the prudent first time buyer will get pre-approval for X dollars at Y% etc which is usually good for a few months or so. How can the bank know it is going to have a GIC to match the mortgage down the road?  

Thats why a bank has a treasury dept with hundreds of headcount doing various modelling, fund sourcing, etc. Banks in general dont match mortgages with GIC of similar terms anyway. A bank makes money by borrowing short term funds to fill long term loans. Usually a yield curve is positively slope and banks earn a spread.
This is also why when you hear the news "yield curve flattening" or bond yields are down which hurts the bank's profitability. Bond yield down = mortgage rate down, not necessarily short term borrowing cost down.

May 8, 2021
10:11 am
Bill
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Exactly, savemoresaveoften, and we're dealing with large pools of money that regularly fluctuate within parameters, it's not like the bank goes "yippee, we just sold a $50K 3-year GIC, sure hope somebody comes in today looking for a $50K 3-year mortgage!"

May 8, 2021
12:31 pm
Norman1
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Loonie said

Again, I never did this myself, but I am under the impression that the prudent first time buyer will get pre-approval for X dollars at Y% etc which is usually good for a few months or so. How can the bank know it is going to have a GIC to match the mortgage down the road?

The actual matching is done on its pool of mortgages and not necessarily on an individual mortgage basis.

That five year mortgage could, for example, end up being funded by 100 different GIC's with maturities scattered within a month of the mortgage's term end in five years.

Ideally, all the GIC's for the five year mortgage would be issued on the day the mortgage is advanced. Then, the GIC's will mature on the exact day the mortgage becomes due in five years. But, in practice that isn't possible.

In practice, some of the GIC's will have been issued before the mortgage was advanced and some will be issued afterwards. Some controlled amount of mismatch is allowed and bridged with shorter term deposits. Managing that mismatch between the mortgage book and the deposit book is part of the business.

A financial institution can also fund some of the mortgages using its own retained earnings and shareholder capital. Both those have infinite term. So, there's no chance the retained earnings or shareholder money will get yanked before a mortgage comes due.

May 8, 2021
12:31 pm
Norman1
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No, they don't borrow short and lend long. The financial institution would topple should those short term deposits not be rolled over and the money has to be returned before the loans come due. That's what happened in 2007 in that asset-backed commercial paper fiasco.

Short term commercial paper was issued to fund long term leases. One day, the commercial paper holders didn't roll over their holdings and wanted their money on maturity.

May 8, 2021
8:28 pm
Loonie
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So, all 3 of you are now agreeing with what I said in the first place, that the idea that each mortgage is matched with a GIC doesn't hold water. You all have different versions of this, but it amounts to the same thing from my perspective. Even Norman has now introduced additional sources of funds.

I am just hoping that the next time someone on this forum wants to say that mortgages are bound to GICs, that they will reconsider and not give the impression this is iron-clad. Banks have various factors to consider in setting their rates and in negotiating rates.

May 9, 2021
5:39 am
savemoresaveoften
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Norman1 said
No, they don't borrow short and lend long. The financial institution would topple should those short term deposits not be rolled over and the money has to be returned before the loans come due. That's what happened in 2007 in that asset-backed commercial paper fiasco.

Short term commercial paper was issued to fund long term leases. One day, the commercial paper holders didn't roll over their holdings and wanted their money on maturity.  

Short term borrowing is the main vehicle they use to fill the gap between maturity mismatch, which some gaps are by design.
Some bank treasuries are run as profit center (wont give names but I have insider knowledge), and one way to make money is thru maturity mismatch, among other treasury techniques.
Issuing 5y bond to fund a 5y mortgage is simple and guarantee X bps spread, but you wont see banks issuing 5y bonds on a regular basis. And 5y GIC intake is simply not big enough to fund all the 5y mortgages.

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