Variable Rate Mortgages Continue to Increase – Trend of the Shrinking Spread

October 12, 2011

It seems like the trend of the shrinking spread is continuing this week. (Say that 3 times fast) Today, a number of lenders indicated that the spread on their variable rate mortgages was poised to shrink again pricing variable rate mortgages at prime (3.00%).
The culprit seems to be narrowing spreads. The spread is essentially the difference between the rate offered by a lender to a client minus the lender’s cost to fund your mortgage. The lender’s base cost for variable rate mortgages is typically a 30 day bankers’ acceptance (BA) yield. The following graph from shows that since early September those yields have increased.

Where could we go from here? We usually think of variable rate mortgages as prime minus x however there is nothing preventing lenders from being forced to increase the spread to prime plus in the current rate environment. Stay tuned for further developments.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.