With Royal Bank of Canada and TD Canada Trust hiking mortgage
rates, the era of rock bottom rates could be coming to an end. The move will
see Canadians paying a rate of 5.44% to these mortgage lenders
on their 5-year mortgages. Interest rates on 3 and 4 year mortgages will also
increase by 0.25 percentage points. One and two-year interest rates will
increase by 0.15 percentage points. Six, seven and ten year mortgage rates will
remain unchanged, said the report.
In comparison to the weak US economy and the generally frail
economic climate in Europe, the Canadian economy has been relatively strong.
Mortgage rates for 5-year terms are tied to the bond market rate of return (or
yield) and the Canadian bond market bounced back recently after experiencing
declines for three months. This means that Canadian banks have had to pay a
higher interest rate for bond market borrowing to lend credit to
customers.Following the decision of the United States Federal Reserve
to purchase an added $600 billion of Treasuries, the yields have seen a
rebound. The bond market is also being affected by the declining European
economy, with nervous investors insisting on higher yields in return for the
higher risks. The huge fiscal crises in Portugal and Greece are a major cause
for concern among investors. Irish bonds also fell after prime minister Brian
Cowen said that he was doubtful that a resolution to Ireland’s fiscal crisis
could be agreed upon at a high-level meeting among European ministers of
finance.
