Many homeowners face increased costs as interest rates have begun what is expected to be a series of hikes.Photograph by: Archive, Calgary HeraldRoyal Bank of Canada and Bank of Nova Scotia have hiked residential mortgage rates for the second time in as many months, likely sparking another round of increases from other banks at the onset of what is expected to be one of the busiest homebuying seasons in recent years.
As of today, RBC and Scotiabank's five-year closed fixed-rate home loans will carry an interest rate of 6.1 per cent, the highest since November. Those same mortgage products carried a rate of 5.25 per cent a little more than two weeks ago.The 25-basis-point hike, announced by RBC and Scotiabank on Tuesday, comes fast on the heels of a 65-basis-point hike by the big banks late last month. It also comes as expectations rise the Bank of Canada will raise its key interest rate earlier than previously thought.Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank's TD Securities unit, said investors are now factoring in a 50 per cent probability that central bank governor Mark Carney will raise interest rates on June 1. Carney has pledged to keep the central bank's benchmark rate unchanged through June, "conditional" on the outlook for inflation.The first round of mortgage rate hikes kicked off on March 29, as RBC, TD and Laurentian Bank announced the cost of their mortgage offerings would rise between 40 and 60 basis points.
RBC was the first to announce on that day as well.A day later, Scotiabank, Canadian Imperial Bank of Commerce and National Bank of Canada did the same.The banks say they are raising their rates because their own cost of funding is going up as investors demand higher yields.Canada's real estate market has been booming since the economy emerged from recession last year as consumers take advantage of some of the most favourable mortgage rates in decades.
Homebuyers are facing hurdles on other fronts as well, with more stringent mortgage lending rules set to take effect on April 19 and the looming introduction of the harmonized sales tax in Ontario and British Columbia.Many homebuyers are expected to try to rush to make their purchases ahead of the changes to keep their costs down.
"Mortgages are tied to the bank's funding costs, which change from day to day," said Gillian McArdle, a spokeswoman for RBC."Our long-term funding costs have gone up considerably since mid-December and it is now necessary for us to increase . . . fixed-rate mortgages."
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Higher mortgage rates are going to kill the real estate market. The buyers I know who have bought recently are only squeaking into the market at their maximum mortgage approval. A difference of only 50 basis points puts them out of the market to purchase a house.
ReplyDeleteActually, the market started to level off when potential buyers started to realize that last years price gains had caught enough to cancel out those low rates.
ReplyDeleteThe 2007 correction that was interrupted by those crazy low rates is about to resume bigtime as potential sellers are not quite as blind as the few remaining greater fools.
But...according to the guy from SFU they interviewed on CBC last night, house prices will NOT go down even with increased interest rates. Why not? Because the economy is in "recovery" so we're all making buckets of money and can apparently afford to pay more and more for houses.
ReplyDeleteI guess he's never seen the Debt to Income graph that shows we're all in huge amounts of debt.
Does anyone know if the new CMHC rules will apply to current homeowners with a CMHC mortgage when their current term expires or are they covered by CMHC regardless for the amortization of the mortgage?
ReplyDeleteI also thought that CMHC wouldn't continue insuring a mortgage that was underwater by a certain % when the current term expires. Can anyone set me straight?
Tony - CMHC continues to insure the mortgage for the entire amortization, regardless of term, amount or current Loan To Value ratio.
ReplyDeleteAll of the other banks have now followed with this rate increase.
There is no escaping the bond market.
The swiftness of the bond market is truely amazing.
ReplyDeleteWhat is very concerning is that credit prices are moving up on outstanding debt but the govn't is decreasing spending and increasing the consumers tax liability so the equation won't balance. I wonder where the money will come from?