Think twice about HSBC’s 0.99% variable rate mortgage

A few records have been set, oddly, in this pandemic year, including for housing sales, and now Canadians have access to what’s believed to be the lowest variable rate mortgage in the country’s history.

HSBC just rolled out a 0.99% variable rate on insured mortgages that has already, according to a couple of mortgage brokers, drawn intense interest from the public. Although the mortgage may not be suitable for investors, another low rate is available to them.

“We have mortgages that suit many of our clients’ needs. Our 0.99% rate is available for high-ratio owner-occupied properties, but for those looking for a mortgage for an investment property, we also have a low five-year variable rate at 1.39%,” Barry Gollom, HSBC’s senior vice president of products and propositions at HSBC Bank Canada, said in a note.

The penalty on variable rate mortgages also makes HSBC’s offering that much more enticing, says Daniel Johanis, who noted that insured mortgages can’t exceed $1 million.

“A sub-1% variable rate mortgage in Canada is pretty insane,” said the Rock Capital Investments broker. “The penalty on variables is only three months of interest, so you’re far ahead on the rate.”

However, Johanis noted that HSBC mortgages aren’t available to the mortgage broker channel, which means that potential borrowers have to secure the rate themselves, and the popularity of this new mortgage product has resulted in wait times in excess of three hours.

With rates slated to remain low through 2023, Laura Martin, chief operating officer of Matrix Mortgage Global, doesn’t think the 0.99% variable rate mortgage product is sage in the long run. Moreover, she estimates that only about 10% of borrowers would qualify for it.

“The main thing now is, because we’re seeing a 0.99% variable, if you look at a fixed rate mortgage they’re as low as 1.39%, so you’re not going to outcompete the fixed rate in the long run,” said Martin. “Long-term, the banks will absolutely raise the prime lending rate as soon as the economy stabilizes. Fixed-rate mortgages are tied to the bond market, so even mortgage refinances would be better off with the 1.39%. Historically, variables have been fixed because normally the spread is larger, but not on this run—not at 1.39%. No way.”

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