2 June 2010

Because of today’s spread between discount variable rate mortgages (VRMs) and bankers’ acceptance (BA) rates, it doesn’t seem that we’ll get that 25 bps back.
Now the VRM-BA spread is about 119 bps:  
2.00% [typical VRM rate of prime – .50%] – 0.81% [3-month BA rate] = 119 bps
Lenders also have to understand that securitization costs play an important role in reducing spreads (according to the last Canada Mortgage Bond floating-rate issue – 13 bps based or more).
In addition to it, they have to consider funding costs for all the products they offer.
In other words, lenders would like to make 120-130 bps spreads on 5-year mortgage terms.