Home buyers warned that mortgage rates are on a steady climb, though interest rates aren’t expected to soar through the roof.
By: Vanessa Lu Business reporter, Published on Tue Jul 02 2013
Reality is starting to sink in when it comes to mortgage rates: Watch out they’re creeping up.
Beginning last month, the big banks began raising their interest rates on fixed-term mortgages – by small amounts, in part due to the market reaction to U.S. Federal Reserve Chairman Ben Bernanke’s warning that the $85 billion (U.S.) in monthly bond buying may soon be coming to an end, likely later this year.
That was enough to spook stock markets, and bond yields started to rise. Because fixed-rate mortgages are closely tied to bond rates, lenders are raising those interest rates. The government of Canada bond yield went from 1.1 per cent in early May to 1.8 per cent now.
Kelvin Mangaroo of ratesupermarket.ca said banks are reluctant to introduce big rate changes, preferring instead to bring in smaller increases of 0.1 or 0.2 of a percentage point, as seen in the last few weeks.
“Rates have been changing so quickly. Rates were even changing during the day,” Mangaroo said, adding if consumers are looking to buy a home, they should try to lock in to a rate now.
Last Friday, BMO announced its five-year fixed mortgage was rising to 3.59 per cent, up 0.20 per cent, and RBC set its five-year fixed at 3.69 per cent.
“Just three weeks ago, a five-year fixed was 2.89 per cent in the wholesale market, which mortgage brokers deal in,” said Steve Garganis of Mortgage Intelligence. “And they have gone up three times since,” he said, adding though 3.39 per cent was still available on Tuesday.
“It’s a pretty substantial increase – half a per cent increase in three weeks,” he said. “It’s the largest chunk we have seen in the past three or four years in such a short time.”
Garganis added interest rates were kept low – after the 2008 financial crisis to boost the economy – so the days of 3 per cent fixed rates are probably over.
“Is the sky falling? No,” he said, pointing out that the average interest rate over the past 25 years is more than 7 per cent on a five-year fixed. “I think a more normal rate should be between the 4 and 5 per cent range, closer to 5 per cent.
“That’s what you should expect to pay.”