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 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.

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 beaten fixed because normally the spread is larger, but not on this run—not at 1.39%. No way.”

With that said, the 3-month interest early break penalty does make it enticing, IF you can qualify for it. This product is only available for high-ratio insured purchases, with a maximum purchase price of $1,000,00 and deals must be submitted by January 3, 2021.

Dominion Lending Centres recently secured a partnership with HSBC, so brokerages under that franchise can access this low rate.