Major banks – in this instance TD-Canada Trust and Royal Bank – recently raised their mortgage rates on five-year fixed rate mortgages in response to pressures on bond markets brought about by continuing concerns over European government debt – particularly that of Ireland, Greece and Portugal.
According to a report in the Toronto Star , both TD and RBC separately announced “that they are increasing some of their fixed-term mortgage rates by as much as one-quarter of a percentage point” effective November 16. Other major banks may be expected to follow suit.
“At both banks, five-year mortgages, one of the most popular among Canadian homeowners, will rise by 0.25 of a percentage point to 5.44 per cent.,” the Star reports. The new rates for five-year fixed rate mortgages exceed – for now – the rates offered by other major banks, and are significantly higher than rates from non-bank and private lenders that are available through a well-resourced mortgage broker.
“Five-year mortgages rates in particular are closely tied to yields (rate of return) in the bond market, which have recently rebounded, following about three months of declines,” the Star notes. This shift in bond yields means that “Canadian banks have been paying a higher rate to borrow in the bond market in order to lend to customers.” Mortgage rates offered by non-bank and private lenders are not necessarily as closely tied to bond yields as those of the major banks.
With continuing concerns over the European debt crisis, and a U.S. economy that continues to underperform, there will be pressure on the other major banks to ratchet up the interest rates on their fixed rate mortgage products. As international monetary concerns continue to play out, and major banks react to rising bond yields, Canadians considering refinancing their current mortgages should consult a well-resourced mortgage broker to investigate the terms and conditions offered by non-bank and private lenders.
