I have a mortgage rate of 1.99% until June 2026. How does the bank make up the difference from today’s rates? – Michel Martel
When a bank grants a mortgage to a client, it is able to meet the terms of the agreement and should remain profitable, regardless of the fluctuation of interest rates that may occur over time. .
“Rate increases should not impact mortgages already on the balance sheet if the organization has previously financed itself on terms that were then deemed ideal for what was offered to the client at the time of signing the agreement. mortgage,” said Laurentian Bank spokesperson Merick Séguin.
To finance themselves, banks have many options, whether short or long term.
Personal deposits and commercial deposits are probably the largest and simplest sources of funding for Canadian banks.
In general, personal deposits and commercial deposits come from the branch network of banking institutions. These funds are used to finance personal and commercial lending activities such as mortgages, business loans, lines of credit and credit cards.
Wholesale funding is the other main source of funding for banks.
“Typically obtained directly from institutional investors in the capital markets, wholesale funding primarily helps banks finance their activities in these markets, acquire high-quality liquid assets and provide financial services to their major customers. such as financial institutions, large corporations and government agencies,” the country’s central bank said.
Banks can also use it for their mortgage and credit card portfolios, or other lending activities, it said. “Wholesale funding markets allow banks to quickly raise substantial funds for short or long terms. »
The Bank of Canada notes, however, that since the cost and availability of wholesale funding depends on conditions in global capital markets, this source of funding is less stable than retail and commercial deposits.
The special status Crown corporation points out, for example, that during the financial crisis, the excessive reliance on short-term wholesale funding by some foreign financial institutions fueled concerns about their solvency.
“Most of the banks’ wholesale funding, especially for long tenors, comes directly from institutional investors, who buy tradable securities in the primary market. These instruments can subsequently be traded on the secondary market with all kinds of investors. »
