Royal Bank of Canada has hiked rates on its fixed-term mortgages amid rising bond yields and widespread anticipation that the country's central bank will raise its benchmark interest rate next week.
RBC, which is Canada's second-biggest bank by assets, boosted its posted rates for two-year, three-year and five-year fixed rate mortgages by 20 basis points each. (A basis point is 1/100th of a percentage point.)
The new rates are 2.54 per cent, 2.64 per cent and 2.84 per cent, respectively, for mortgages with amortization periods of 25 years or less.
"This rate increase reflects 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," Jill Anzarut, an RBC spokeswoman, said in an e-mail.
RBC's move comes at a time when Canada's hot housing market is experiencing an array of competing pressures.
Low interest rates and a dearth of supply have sent prices in some major cities shooting upward, most notably in Vancouver and Toronto. But governments and regulators have responded with measures to cool these markets, from tougher stress testing to new taxes on purchases by foreign buyers, and Toronto's overheated market has shown some signs of a slowdown in both sales and price increases over the last two months.
Experts in the mortgage industry say many other financial institutions, from big banks to smaller alternative lenders, have also pushed up mortgage rates in recent days, even though posted rates haven't risen in step with RBC.
"All the lenders are moving up," Dan Eisner, founder and chief executive officer at True North Mortgage, said in an interview. He believes there is "a significant chance" that the banks' rates could move higher again in the coming weeks amid a shift in monetary policy.
The Bank of Canada will release its next rate decision on Wednesday and many investors are expecting the central bank will raise its key benchmark rate by a quarter of a percentage point, marking its first rate hike in about seven years.
The decision that could affect variable rate mortgages, and anticipation of a rate hike has already sent bond yields – which influence fixed rate mortgages – much higher. The yield on the Government of Canada five-year bond has risen above 1.4 per cent in July, up from about 0.9 per cent just a month ago.
The move comes amid a shifting landscape for borrowers, as central banks worldwide appear bent on tightening monetary policy as the global economy improves.
The U.S. Federal Reserve has already raised its key interest rate three times since December, and financial markets reflect a 55 per cent chance of another hike by the end of this year as the labour market improves.
In Canada, there is now an 89 per cent probability of a rate hike next week, marking a radical shift from negligible chances of a rate hike just a month ago.
As governments and regulators take steps to try and cool overheating housing markets, and banks raise rates, borrowers can expect to find it more expensive to secure or refinance a home loan.
"We recognize that today's mortgage market is a low-rate environment that gives a number of clients the opportunity to buy a home," RBC said in a statement. "Buying a home is the biggest investment that many Canadians will make so it is important that clients ensure they are able to afford a mortgage over the course of its term."
With files from David Berman