Banks in­crease cost of mort­gages ahead of BoC rate de­ci­sion

National Post (Latest Edition) - - FINANCIAL POST - Ge­off Zo­chodne Fi­nan­cial Post

• Cana­dian lenders have boosted their mort­gage rates ahead of an in­ter­est rate de­ci­sion next week by the Bank of Canada.

A Royal Bank of Canada spokesper­son said Fri­day t hat t he l en­der had i ncreased its five- year fixed mort­gage rate by 15 ba­sis points, to 5.14 per cent.

The spe­cial rate for a fiveyear fixed mort­gage with a 25- year amor­ti­za­tion pe­riod rose to 3.54 per cent from 3.39 per cent, added A. J. Good­man, direc­tor of ex­ter­nal com­mu­ni­ca­tions, per­sonal and com­mer­cial banking, at RBC.

“Rate changes re­flect re­cent ac­tiv­ity by com­peti­tors, and the cur­rent costs that we in­cur for funds on the whole­sale mar­ket as well as other costs and mar­ket con­sid­er­a­tions,” Good­man said in an email.

CIBC raised fixed mort­gage rates by be­tween 10 and 15 ba­sis points, ef­fec­tive Fri­day, “in re­sponse to mar­ket con­di­tions,” a spokesper­son said in an email.

Toronto- Do­min­ion Bank hiked its five- year fixed rate for mort­gages to 5.14 per cent on Fri­day as well, from 4.99 per cent. The fixed rate had been be­low five per cent since Fe­bru­ary 2014, a spokesper­son said.

“Fac­tors that we con­sider when mak­ing mort­gage rate changes in­clude Bank of Canada rate changes and eco­nomic fac­tors im­pact­ing the costs to fund mort­gages, as well as the com­pet­i­tive en­vi­ron­ment,” said Ch­eryl Ficker, se­nior man­ager of cor­po­rate and pub­lic af­fairs at TD Bank Group, in an email.

A Bank of Nova Sco­tia spokesper­son told the Fi­nan­cial Post in an email Fri­day that “we are re­view­ing our rates to en­sure we re­main aligned to the mar­ket, and will likely make changes to our rates soon.”

A spokesper­son for Na­tional Bank of Canada said the lender had not made a de­ci­sion yet.

The Bank of Canada will an­nounce the next de­ci­sion on its pol­icy rate on Wed­nes­day, and there could be fur­ther mort­gage moves to come. But the call on the cen­tral bank’s overnight rate tar­get will come amid a rosier eco­nomic back­drop of late, as il­lus­trated by its own pos­i­tive win­ter busi­ness out­look sur­vey. Sta­tis­tics Canada also re­ported last week that the coun­try’s un­em­ploy­ment rate dropped to 5.7 per cent in De­cem­ber, a 40-year low.

The solid eco­nomic data has the mar­ket brac­ing for an­other rate hike by the cen­tral bank, which i ncreased the tar­get for its overnight rate twice l ast year.

“Cru­cially, the econ­omy seems to be out­per­form­ing t he BoC’s ex­pec­ta­tions, which were for growth to de­cel­er­ate to­wards the end of 2017,” com­mented Ranko Berich, head of mar­ket anal­y­sis at Monex, on Thurs­day. “The next BOC meeting is there­fore highly likely to see a rate hike and a re­vi­sion of the pol­icy stance.”

TD Se­cu­ri­ties said Fri­day that it ex­pected the BoC to hike rates to 1.25 per cent from 1 per cent, even with un­cer­tainty around the fu­ture of the North Amer­i­can Free Trade Agree­ment.

“NAFTA risks should re­main on the back burner,” TD said. “This is a near uni­ver­sal con­sen­sus view now, but it cer­tainly wasn’t the case last month.”

The mort­gage rate i ncreases are hap­pen­ing with new rules for unin­sured mort­gages in ef­fect. Those changes, as of Jan. 1, in­clude a new “stress test” home­buy­ers must pass to qual­ify for an unin­sured mort­gage, a thresh­old that is ei­ther the Bank of Canada’s five- year bench­mark rate or the con­trac­tual rate plus 200 ba­sis points, which­ever is greater.

“Buy­ing a home i s the big­gest i nvest­ment t hat many Cana­di­ans will make so it is im­por­tant that clients en­sure they are able to af­ford a mort­gage over the course of its term,” Good­man said. “This means, at a min­i­mum, un­der­stand­ing what you can af­ford based on to­day’s rates, the dif­fer­ence be­tween fixed and vari­able rates, po­ten­tial in­creases and other in­ci­den­tal costs that come with home own­er­ship.”

NATHAN DENETTE / THE CANA­DIAN PRESS FILES

Royal Bank said Fri­day it had in­creased its five-year fixed mort­gage rate by 15 ba­sis points, to 5.14 per cent.

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