Other banks expected to follow suit

Mortgage rates have begun to rise from their record lows, with news that several Canadian banks are increasing several fixed mortgage rates by up to 6/10ths of a percentage point.

The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at Royal Bank, TD Canada Trust, and Laurentian Bank. That’s the posted rate, which is routinely discounted by the big banks.

RBC’s new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD’s rises the same amount to 4.55 per cent. The discounted rate at Laurentian moves up to 4.54 per cent.

How much difference will that make? A $200,000 mortgage amortized over 25 years costs $1,051 a month at a rate of 3.99 per cent. At 4.59 per cent, that jumps $66 a month to $1,117.

The banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank and Laurentian climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.

The posted four-year rate at all three banks jumps 4/10ths of a percentage point to 5.34 per cent.

Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October. The posted five-year rate is now back to where it was for much of last summer.

New mortgage rules that go into effect next month require borrowers to qualify at the five-year rate, rather than the old three-year standard, even if they are applying for a variable rate mortgage.

Variable rates expected to rise soon

Variable mortgage rates, which rise in tandem with the Bank of Canada’s key overnight lending rate, are not affected by Monday’s announcement. But they are likely to be heading up soon too.

Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June. The possibility of an earlier rate hike sent bond yields up, and that appears to have prompted Monday’s mortgage increase. Fixed mortgage rates tend to move higher when long-term bond yields rise.

The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.

A report out Monday from CIBC World Markets said rising rates shouldn’t be enough to derail the stock market rally — pointing out that the market is historically strong six months before and after rate increases.

A survey released last week by RBC found almost two-thirds of respondents expected the cost of servicing a mortgage to rise this year.

Read more: http://www.cbc.ca/consumer/story/2010/03/29/mortgage-rates-up.html#ixzz0jh9i1xko

Many Canadians will be forced to scale down their real estate ambitions under new mortgage rules that aim to both keep people from taking on too much debt and rein in speculators, all without knee-capping an industry that has been a major driver of the recovery.
 
The tighter standards come after months of debate about whether a bubble is forming in the housing market, and repeated urging by policymakers for borrowers and lenders to be prepared for higher interest rates.
 
The changes, announced by Finance Minister Jim Flaherty, are designed to keep Canadian consumers from becoming perilously overstretched, and deter speculators from buying houses solely as investments. Observers and industry players said the steps aren’t likely to smother the broad strength in the housing market, where eager buyers often armed with hefty mortgages have bid up prices sharply over much of the past year. The Finance Minister said he was unveiling the measures now, before the need for them becomes more urgent.
 

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