You are playing with #’s to make them look worse than they are. A 1% increase is 1 percent. Not 67%. Yes I know what you are gtting at but it is still playing with #’s.

My remark about lending at 3.25% being practically free is that it is. Let me ask you this. If you had $100,000 or $1,000,000 to invest and someone came to you and said lend it to me at 3.25%. You would tell them to get lost, it is not worth your time even with a house as collateral. 3.25% once you factor in taxes and inflation means you are actually losing money. So while I do not like my HELOC going up 1%, you still need to put it in perspective.

You mention OSFI saving the Canadian Economy? They are the ones who almost FU&^%$ it up restricting what banks can and can not do. Everything the Canadian banks didn’t do (Exception CIBC and National) that the Americans did do was not done because they weren’t allowed to but rather they chose not to. Banks had the ability to go neck deep into sub prime but didn’t for the most part.

Banks lend their money on heloc’s from the bond market or overnight market. Bank accounts are used for different lending purposes. When LIBOR went up every bank who was lending at prime was taking a beating and losing a crap load on their HELOC business at prime. This is no secret, ask any independent economist anywhere and they will all tell you that as will any University Professor, CNN, BBC, BNN, etc… Lending at prime was never done many years ago or very rarely. Out of greediness banks generally offered it to everyone over the past 10 or 15 years versus their elite clients only and thus overexposed them and they took a beat down. A good client changed from someone with 7 figures on deposit to anyone with a pulse.

They have now learned their lesson and won’t be so stupid again and thus the interest rate hike. Does the hike mean banks are in trouble??? No, it means they are not stupid and while they may get burnt once they will not let it happen again.

The Canadian banks make pretty good money (Several Billion). But you need to remember they are massive in size and a few billion isn’t actually all that much. Most of the Canadian Bank are major Global players. RBC is all over the US and South America. TD has more branches in the USA than Canada. Scotia is all over Latin America. These are not the same little Canadaian Banks many Canadians think they are.

While CIBC has made Billions for many years they almost went Bankrupt when Worldcom and Enron hit and again over Sub-Prime. Making a few Billion is not a lot for companies this size and scope.

So yes, Prime + 1% sucks for me and you. but we have a choice if we do not like banks. Don’t use them. borrow from your friends and put your cash in your mattress and if you want to buy stocks or bonds fly to Toronto, New York or London to buy your stock or you can go to your bank and buy it for $9 on-line. The banks are too smart to be stupid. If you don’t like em, at least buy stock in them. That is what I did last year and I am smiling.

> As for your comment about the banks getting us into this.
Yes, you are correct, the Canadian bank didn’t get much into the problem. It was mainly & mostly the US bank.

> Actually the Canadian Banks saved our economic buts compared to what is happening in the US
> and globally.

The Canadian Bank didn’t save our economics. It is the Canadian government OSFI (Office of the Superintendent of Financial Institutions Canada). They are the one who made sure the Canadian bank do get into too much of the sub-prime.

> So while I appreciate you do not like a higher int rate which is the same as me and the rest of the world…
> You need to understand big picture. Lending at 3.25% is hardly gauging. It is practically free money. If the
> bank was actually making 3.25% I wouldn’t even call that gauging and we all know they are making no
> where near 3.25% when they lend at prime + 1.

I personally, I think I understand the big picture quite well.

Lending at 3.25% is practically free?!? Why would you say 3.25% is practically free?
If it was practically free, would be 0% or close to 0%? What is the difference between 0% vs 3.25%?

Currently, TD top saving interest rate is 0.75% for people who has over $60K in their account. Can you compare 0.75% saving rate vs 3.25% mortgage rate? What is the spread on this?
(0.75% – 3.25%) / 0.75% = 333%

Beforehand, if we compare 0.75% saving rate vs 2.25% mortgage rate? What is the spread on this?
(0.75% – 2.25%) / 0.75% = 200%

Therefore, how much more spread did the bank make when they decided to increase P+1%
(ie. 333% vs 200%) (200% – 333%) / 200% = 67%

Personally, I think this quite high. Don’t you agree?

However, I understand that the people & bank needs to make money. There is nothing wrong in them making money. The bank provides a wonderful service. My big issue is why do they need to change the EXISTING HELOC to P + 1%?

By changing the agreement/rate, doesn’t it say that Cdn bank are in financial trouble and need more money to keep a float? What does it mean?

Chad

I myself work in the financial industry, and understand how the bank work quite well.

Why would the bank want to return the rate back to Prime? If nobody complains about it, they have no incentive to switch back to Prime.

Furthermore, between a mortgage & variable rate open HELOC is more higher risk for the bank. Hence, they need interest payment.

Chad

Are you by any chance working for the banks because by tone of your reply it seems you do.

FYI – No where in the contract does it says” they can raise rate” it just reads “we may change the agreement”.
Its a big difference. The rates are low now so what happens when rates go up. Do you think the banks will lower their rate back to prime..

We all know the banks are Crooks and Cry Wolf at every chance they get to increase rates.

The contract you signed states the bank can raise rates. I agree that I do not like my rate being raised but the bank didn’t do anything shady but rather you failed to read. As for your comment about the banks getting us into this. Actually the Canadian Banks saved our economic buts compared to what is happening in the US and globally. TD and RBC are the highest credit rated banks in North America and arguably the world which you would know if you read the business section. So while I appreciate you do not like a higher int rate which is the same as me and the rest of the world… You need to understand big picture. Lending at 3.25% is hardly gauging. It is practically free money. If the bank was actually making 3.25% I wouldn’t even call that gauging and we all know they are making no where near 3.25% when they lend at prime + 1.

Sorry Chad
You might very well be employed because of the banks you bash

However, for all existing HELOC, they are forcing P+1% as of Jan 2010. Is this fair? Didn’t we signed a contract with bank and negotiate a rate of what it would be? Bank caused the financial crisis problem, why for all existing client has to suffer for bank’s bad decision?

Could it be the reason for the bank increase of their rate for existing client is just for a cash grab? Please note, TD & RBC has just posted their quarter-end result, which was higher their expected in the market! Hence, the bank is making money, right? Do they really need to gouge more from people?

Lets all sign a petition for all existing HELOC owner to show our displease on Canadian’s distasteful action! Who is in?

“A” clients get prime + 2.99
“B” clients get prime + 3.99
“C” clients get prime + 4.99

Smartly, they advertise the lowest rate on their website.