Banks increase cost of mortgages ahead of BoC rate decision
• 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.”
Royal Bank said Friday it had increased its five-year fixed mortgage rate by 15 basis points, to 5.14 per cent.