Following the cue from the competition, Royal Bank has now raised the rates on fixed rate mortgages with amortizations of 25 years or less. The move to increase fixed rates for amortizations of 25 years is likely a reflection of the latest mortgage rule changes handed down by the Department of Finance Canada. The latest round of mortgage rule changes from Ottawa includes new provisions on ‘low-ratio’ insured mortgages – specifically mortgages where the homeowner has put a down-payment of 20% or higher. The latest rules on low-ratio insured mortgages are set to come into effect on November 30th.
While TD Bank’s mortgage rate increase was specifically targeted at variable rate mortgages, RBC’s move only impacts their fixed mortgage rate products. RBC’s three-year fixed rate mortgage products will now be offered at 2.79%, an increase of 0.10%. Four-year and five-year fixed rate mortgages have also moved up by 0.10% to 2.89% and 2.94% respectively.
The Federal Government’s latest rule changes also included language around a “Forthcoming Consultation on Lender Risk Sharing”, alluding to forthcoming consultations on how the government might modify “the distribution of risk in the housing finance framework” by introducing a modest level of lender risk sharing for government-backed insured mortgages. This is simply a way of the government saying that the banks may soon have to take on a greater share of the risk when it comes to real estate financing in Canada – and when risks go up, interest rates will typically follow.
Another reason for RBC to move their fixed mortgage rates is due to bond yields. Yields have been spiking since the recent American election and as yields on bonds go up, the costs to lend money to consumers through mortgages go up.
Although consumers never welcome higher interest rates, there is a stark contrast between RBC’s latest move and TD Bank’s interest rate hike earlier this month. The Royal Bank decision to raise fixed rate mortgage rates doesn’t impact homeowners currently in a fixed rate mortgage with RBC; while TD Bank’s decision to increase their prime rate affects those Canadians already carrying a TD Bank variable mortgage rate product.
It remains to be seen how Canada’s other big banks will respond to the latest moves from RBC and TD Bank. It is almost certain that the remaining banks will also raise their rates as well; however, the how, when & how much remain to be seen.
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