Why are HSBC Mortgage Rates so Low?
It’s no secret that HSBC offers one of the lowest mortgage rates in Canada, and you might wonder, “Why are HSBC mortgage rates so low?” This move is a surprise, but HSBC uses this strategy to outdo competitors fighting for clients as house prices rise.
House prices have constantly risen in recent years, forcing banks and building societies to fight for customers. As a result, HSBC introduced a mortgage deal with a low-interest rate of less than 1% amid the escalating mortgage rate war.
What You Should Know About Mortgage Rates HSBC Canada
HSBC Bank offers one of the most competitive mortgage rates in Canada and other countries, with a record-low interest rate of less than one percent in 2020. That could help people with a fixed rate deal coming to an end secure the lowest rate.
However, the less-than-one-percent mortgage rates were only available for high-ratio insured mortgages, meaning it was only for buyers with less than 20 percent mortgage, who must pay to insure their mortgage to protect the lender in case of default.
While HSBC no longer offers the less-than-one-percent mortgage rate, it still offers the lowest rates in Canada, making it one of the most competitive lenders. But why are HSBC mortgage rates so low compared to other banks in Canada?
Why Are HSBC Mortgage Rates So Low?
Undoubtedly, HSBC’s announcement of a record-low mortgage rate attracted many people’s attention, including stakeholders in the real estate sector. Besides, the move drew the attention of leaders in the real estate sector, including CEOs and founders of giant real estate companies.
The bank designed the low mortgage rates to draw the attention of potential investors who want to deal with the uncertainty of a variable-rate loan. But, of course, other banks are a few points away from the low mortgage rate threshold. The good news is that HSBC still stands out.
According to Mortgages of Canada CEO Samantha Brookes, the move by HSBC to lower the mortgage rates was to drum up the business. “The banks are getting aggressive to try and keep their numbers up,” Brookes said.
Another reason HSBC offers low mortgage rates, according to Laird, co-founder of Ratehub.ca and president of CanWise Financial, is to target a specific group of buyers, mainly those with less than 5% mortgage. The group constitutes around 10 percent of potential homebuyers.
Finally, HSBC resolved to lower their mortgage rates at the peak of the COVID-19 pandemic to cushion homebuyers from economic uncertainties. The good news is that the bank continues to offer low mortgage rates as the economy recovers from the impacts of COVID-19.
Current Mortgage Rates at HSBC Bank in Canada
Currently, HSBC offers very competitive mortgage rates in Canada, including offers for specific packages. For example, HSBC bank offers a 5.60 percent APR rate, specifically when getting a five-year variable closed term high ratio mortgage. However, the rates can still vary.
Despite the low mortgage rates at HSBC, the rates can still vary, depending on many factors, such as economic growth, the Bank of Canada’s influence, and mortgage risks.
Here is how the factors can influence HSBC Bank rates in Canada.
- State of Economy: If the economy is strong, the demand for the investors’ money increases. As a result, lenders charge a higher interest rate to get the funds. But in a weak economy, mortgage lenders charge a lower interest rate.
- Bank of Canada’s Influence: Since the Bank of Canada sets target overnight lending rates, it influences the prime rate of every mortgage provider. Notably, the Bank of Canada can change the mortgage rates depending on the state of the economy.
- Repayment or Credit Risk: A good credit rating shows you’re repaying debts well. As a result, a mortgage provider may offer you a lower interest rate. So, ensure your credit score is high. Borrowers with low credit scores always pay higher interest rates.
- Interest Rate Risk: If you constantly renegotiate your mortgages, theirs is a high risk that you’ll pay higher mortgage rates than before. Also, you’ll likely pay a higher interest rate upon locking your mortgage rate for an extended period.
- Prepayment Risk: Open mortgages have higher interest rates than closed mortgages. That’s because an open mortgage allows you to repay your mortgage early. However, the mortgage provider won’t benefit much as they would with closed mortgages.
Pros and Cons of Getting a Mortgage at HSBC
When planning to borrow a mortgage from HSBC, it’s essential to understand the pros and cons of HSBC’s mortgage. That will help you make the right decision regarding your borrowing.
Pros of HSBC Mortgages
Here are the benefits you’ll enjoy from an HSBC mortgage.
- Competitive Mortgage Rates: Despite being one of the biggest banks in Canada, HSBC offers the most competitive mortgage rates in Canada. The good news is that there’s no need to haggle for the lowest HSBC rate, as it’s readily available.
- Secure Transactions: HSBC is among the most reputable lenders in Canada and worldwide. The bank has many resources that allow them to apply the best controls and processes to secure your financial transactions.
- Full Access to Banking Products: A mortgage at HSBC allows you to access a full range of additional banking products, like banking and investment accounts. You’ll also be able to apply for secured or unsecured loans from the bank.
Cons of HSBC Mortgages
Despite the numerous benefits of HSBC mortgages, they also come with a few drawbacks, like:
- Short Rate Hold Period: Unlike other banks with 120-130 days rate holds, HSBC offers a reduced rate hold period of 90 days. That can be favorable or not, depending on your situation. However, an extended rate hold period gives you more time to shop rates.
- Unfavorable Prepayment Penalties: Despite offering highly competitive rates, HSBC has adverse prepayment penalties. The bank uses the “discount from posted rate” formula to calculate its early-breakage liabilities for fixed-rate mortgages.
- Fewer Options: Another disadvantage of HSBC is that the bank only sells its mortgages – meaning you may not get the right mortgage product that suits your situation. You’ll have to look for more flexible mortgages from other lenders.
If you’re looking forward to getting a low-interest mortgage in Canada, consider visiting HSBC. The bank offers highly competitive mortgage rates to help customers pay low-interest rates on their loans.