Wednsday
A rise in bond yields has prompted TD Canada Trust ON Monday to raise some of its fixed-term mortgage rates by as much as a quarter of a percentage point, the five-year fixed rate mortgage, a popular choice among Canadians, increased by a quarter of a percentage point to 5.44 per cent.
When bond yields go up, the cost of funding for the bank rise for that long term mortgages, the banks then pass down the cost to the retail borrower. while variable rates are more influenced by the Bank of Canada's policy rate decisions.
TD’s five-year, special closed fixed rate also increased by 0.25 of a percentage point to 4.39 per cent.
The four-year fixed rate increased by 0.20 of a percentage point to 5.14 per cent, and the six-year fixed rate by 0.25 of a percentage point to 5.95 per cent.
The seven and 10-year special closed fixed rates both rose by 0.25 of a percentage point to 5.19 per cent and 5.44 per cent respectively.
All the new rates come into effect on Tuesday. They won’t impact existing mortgages but will apply to new mortgages and renewals.
CIBC followed late in the day with similar rate hikes. raised its mortgage rates, increasing its five-year closed mortgage by 0.25 percentage points to 5.44 per cent. its one and two-year closed mortgages by 0.15 percentage points. The bank’s seven and 10-year rates were increased by 0.25 percentage points.
The Mortgage rate hikes come one month after finance minister Jim Flaherty announced changes to lending rules, new rules to reduce amortization periods from 35 30 years to 30, He reduced the lending ratio of mortgage refinancing to 85 per cent from 90 per cent of home value.
He also announced the federal government would no longer insure home equity lines of credit, Analysts said at the time the new mortgage rules could price some people out of the housing market entirely, and with this mortgage hikes it will further price even more buyers out of the market.
So what does all this mean?
Leverage is out and deleveraging is in.
Interest rates have nowhere to go but up, which may have a big impact on mortgage payments when borrowers renew, the rise means homeowners risk debt loads they can’t handle as rates come off historic lows, It is time for mortgage borrowers to put themselves in risk-management mode and start looking ahead and pay down debt.
The fairly aggressive rate increases are in response to the rallying bond market and suggestions by the Bank of Canada that its overnight lending rate could rise sooner than expected.
Inflation has outpaced estimates in recent months and the central bank’s pledge to keep interest rates low has been conditional upon core inflation hovering around or below 2%.
The increases in mortgage rate coupled that with the new mortgage rules, which will sure help cool Canada’s red-hot Real Estate Market.
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