Sco­tia­bank hikes posted five-year fixed rate

The Globe and Mail Metro (Ontario Edition) - - REPORT ON BUSINESS - ROBERT McLISTER Robert McLister is a mort­gage plan­ner at in­tel­liMort­gage and founder of RateSpy.com. You can fol­low him on Twit­ter at @RateSpy.

The bank has raised its mort­gage rate by 10 ba­sis points to 5.44 per cent

Fixed mort­gage rates are hit­ting mul­ti­year highs. But so far, qual­i­fy­ing for a mort­gage isn’t get­ting much harder. For roughly nine in 10 mort­gage bor­row­ers, mort­gage ap­proval de­pends on pass­ing the gov­ern­ment’s “stress test.” As of this mo­ment, that means ap­pli­cants must prove they can af­ford a rate of at least 5.34 per cent (a.k.a. the “mort­gage qual­i­fy­ing rate” or “MQR”).

De­spite a surge in bond yields, which typ­i­cally lifts fixed mort­gage rates, most banks have held their posted five-year fixed rates at 5.34 per cent. But on Fri­day morn­ing we saw the first big bank break ranks in five months. Bank of Nova Sco­tia hiked its posted five-year fixed rate by 10 ba­sis points to 5.44 per cent.

For the MQR to rise and make life tougher for prospec­tive bor- rowers, at least two more banks would have to lift their posted five-year fixed rates. (The MQR is based on a mode av­er­age of the Bix Six banks’ posted five-year fixed rates.)

That’s pos­si­ble, but not nec­es­sar­ily prob­a­ble near-term, at least un­til the five-year gov­ern­ment bond yield closes above 2.50 per cent – a 10- to 15-ba­sis-point in­crease. That would mark a new seven-and-a-half year high and prob­a­bly be enough to coax posted rates higher.

The MQR aside, the Big Six banks have all been lift­ing var­i­ous dis­counted and posted fixed rates – not in­clud­ing the posted five-year fixed – prior to Fri­day. (Dis­counted rates are what cus­tomers typ­i­cally pay for a mort­gage and are below that of the posted rates pub­licly ad­ver­tised by the lenders.) Just on Fri­day morn­ing, Sco­tia­bank and CIBC an­nounced a host of posted and dis­counted fixed-rate in­creases. That’s not ex­actly sur­pris­ing given the up­trend in yields and given the banks’ fourth quar­ter is his­tor­i­cally a weak sea­son for mort­gage dis­counts to be­gin with.

WHAT’S NEXT

In terms of the ac­tual dis­counted rates peo­ple pay, we prob­a­bly won’t see big banks take fixed rates much higher, near-term. Bond yields are drop­ping as we speak, in part be­cause of crash­ing Cana­dian oil prices. For now, keep an eye on that 2.50-per-cent mark for the five-year yield. We’ll likely need a break above that to see the next leg up in fixed mort­gage pric­ing.

As for vari­able mort­gage rates, the mar­ket is hold­ing its breath for the Bank of Canada meet­ing on Oct. 24. Traders are bet­ting on an­other quar­ter-per­cent­age­point rate hike that day. That would lift the prime rate to 3.95 per cent and suck more dol­lars from the pock­ets of vari­able-rate bor­row­ers.

DEB­O­RAH BAIC/THE GLOBE AND MAIL

A men en­ters a Sco­tia­bank in Toronto in March, 2011.

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