Royal Bank of Canada is raising the posted rates on some of its fixed-rate mortgages, becoming the second big bank this week to make adjustments following sharp increases in government bond yields.
RBC confirmed on Friday that it is raising rates on its one-to-four year mortgages by 15 basis points. It is also raising rates on its five-to-10-year mortgages by 20 basis points. (There are 100 basis points in a percentage point.)
Based on the bank’s current posted fixed five-year mortgage rate of 5.14 per cent, the new rate will rise to 5.34 per cent − although home buyers can generally negotiate with lenders to get rates considerably lower than their posted rates. The changes will take effect on Monday.
RBC joins Toronto-Dominion Bank, which announced earlier this week that it will raise its posted rate for five-year fixed mortgages by 45 basis points, taking the rate to 5.59 per cent. TD raised rates on other mortgages too.
Late Friday afternoon, National Bank of Canada also said that it is raising its fixed rate mortgages, by 15 to 30 basis points. The rate on its five-year mortgage, for example, will rise 20 basis points, to 5.34 per cent. The changes take effect on Tuesday.
Canadian Imperial Bank of Commerce and Bank of Montreal did not respond to a request for comment. In a statement, Bank of Nova Scotia said: “ Scotiabank has not increased its posted mortgage rates since January. We cannot elaborate on pricing changes we might be considering.”
Brad Henderson, chief executive officer at Sotheby’s International Realty Canada, believes that the increases will have little impact on the housing markets in major Canadian cities, given the strong demand for housing amid low unemployment rates.
“We worry a bit more about the smaller cities,” Mr. Henderson said. “If you’re not in a major city like Toronto, Montreal, Vancouver or Calgary, the impact is going to be more pronounced.”
While raising its fixed rates, RBC said that the rate on its variable-rate mortgages will decline by 15 basis points.
“The banks may very well be trying to entice clients to consider variables again,” said Joe Sammut, a mortgage broker at Toronto-based Mortgage Architects.
He speculated that the cost for banks to fund variable mortgages is lower than the cost of funds for fixed-rate mortgages.
The mortgage-rate changes follow rising bond yields in the United States and Canada, which are driving borrowing costs higher.
The yield on the Government of Canada five-year bond rose to a seven-year high of nearly 2.19 per cent on Wednesday, up from 1.63 per cent at the end of November. On Friday, the yield was 2.13 per cent.
Although home buyers can negotiate lower mortgage rates than those posted by the banks − Mr. Sammut said that five-year fixed rates are generally between 3.59 per cent and 3.69 per cent − the increases to posted rates suggest that borrowing costs are rising to reflect stronger economic activity, rising inflation and higher interest rates.
The Bank of Canada and the U.S. Federal Reserve left their respective key interest rates unchanged following their most recent monetary policy announcements. However, the Fed has increased its rate six times since the end of 2015.
The Bank of Canada has increased its key rate three times over the past year, taking the overnight rate to 1.25 per cent from 0.5 per cent. According to Bloomberg News, financial markets believe there is a 65-per-cent chance that the central bank will hike rates again by mid-July.
The shift from ultracheap borrowing costs comes at a time when regulators are trying to cool Canada’s housing market, particularly in Vancouver and Toronto, with tougher rules for mortgage lending.
As of January, prospective home buyers with more than a 20-per-cent down payment are now required to pass a stress test to ensure they can make mortgage payments even if mortgage rates rise by two percentage points.
The changes have raised questions about how many prospective home buyers will now be shut out of the market.
The Toronto Real Estate Board reported earlier this month that Toronto home prices fell 14 per cent in March, year-over-year. However, prices rose 2.2 per cent from the previous month, suggesting prices have begun to stabilize.
In Vancouver, the number of residential sales fell nearly 30 per cent in March, year-over-year. However, condominium prices rose 22.8 per cent while prices for detached homes fell 6.2 per cent.