Canadian mortgage rates are going up yet again

TD Bank raises its five-year fixed mortgage by 45 basis points, the biggest hike since March 2010

by Vanmala Subramaniam
Apr 27 2018, 3:09pm

TD Bank, Canada’s second largest lender, has raised its rate for five-year fixed mortgages by a whopping 45 basis points to 5.59 percent, making it one of the biggest mortgage rate increases by a major Canadian bank in the last few years.

In an emailed statement to Bloomberg News, TD Bank spokesperson Julie Bellissimo confirmed that the bank had indeed lifted its five-year closed rate on Wednesday, April 25th, the same day that Bank of Canada Governor Stephen Poloz declared that the Canadian economy was “finally positive”, after years of acclimatizing to the slump in oil prices. The bank also said that it would be increasing its two-year, three-year, six-year and seven-year mortgage rates.

TD did not immediately respond to VICE Money’s request for confirmation of the emailed statement.

Royal Bank of Canada confirmed to VICE Money Friday morning that as of April 30, the rate on its five-year fixed mortgage will go up by 20 basis points, while the rate on its one-year fixed mortgage will go up by 15 basis points.

A spokesperson from Scotiabank told VICE Money that the bank “cannot elaborate on pricing changes that we might be considering”, while CIBC confirmed that their mortgage rates have not changed. BMO, also one of Canada’s “Big Five” banks did not immediately respond to VICE Money’s query on whether they would be raising mortgage rates in the near future.

“The benchmark posted 5-year fixed rate hasn’t risen 45 basis points since March 2010, so yes, if other banks followed, this would be a market moving event,” Rob McLister, founder of a mortgage rate comparison website told VICE Money.

Poloz’s comments on Wednesday sent government bond yields to their highest levels in seven years. When there is an expectation that the economy will start to grow — one that was triggered by Poloz’s comments — bond yields tend to rise in anticipation of an interest rate hike. The simple economic explanation for that is when the economy does well, borrowing increases, and the dynamics of supply and demand dictate that interest rates will rise to meet demand for loans.

As to why TD hiked its fixed mortgage rate by that magnitude, McLister believes that the bank could be “floating a trial balloon” to see if other banks follow suit with rate increases. “They could also be trying to spur people into locking in mortgages, or they could be trying to add margin to mitigate housing risk.”

Since July 2017, the Bank of Canada has raised rates three times, in response to an improving economy and a 40-year-low unemployment rate. Last week, the Bank kept interest rates steady at 1.25 percent, but economists and industry players widely expect a fourth interest rate hike this coming July.

In the last decade or so, interest rates have been at a historic low, leading Canadians to take out mortgages at a rate never seen before. Household debt levels in Canada are at a record high, with a substantial amount of the debt coming from mortgages. If interest rates continue to go up, there is a fear that many Canadians, who have perhaps overextended themselves, might start facing difficulty meeting their monthly mortgage payments.

McLister believes that if all the Big Five banks raise their fixed mortgage rates, it will have an impact on the Toronto housing market, which has been in slump-mode for about a year now since the Ontario government introduced strict housing measures.

“7 out of 10 borrowers get fixed rates so they have more impact on housing demand than variable rates,” McLister said.

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