I noticed there was a headline yesterday that a few of Canada’s major banks were raising posted rates on 5-year fixed rate mortgages from 5.25% to 5.85%.

This is completely irrelevant news. The reason is because posted rates are about as valid as the MSRP sticker price you see when you try and buy a new car – they will certainly sell it to you for that price and be very happy to make a bloated margin, but with some simple negotiation you can bat down the price to a more acceptable level.

I do not know why banks even bother with “posted” rates anymore – there must be a reason why they don’t post their most competitive rates. I am guessing it is because they don’t want to appear to be in direct price competition with each other.

Going to a mortgage broker or even looking at ING Direct’s site gives you a better reflection of what market reality is – it has not budged from 3.69% and 3.89% for a 5-year fixed term, respectively.

In reality, what happens is that the market establishes mortgage rates on a fixed spread over the 5-year government note rate:

The 5-year rate has hovered around 2.4% to 2.9% over the past 10 months; the 5-year fixed rate mortgage (at ING Direct) has hovered between 3.79% and 4.49% in the same timeframe.