Mortgage rates on the upswing
Regina Leader Post - March 30, 2010
TORONTO— For Canadians now accustomed to rock-bottom mortgage rates, a harsh reality looms.
Rates are officially on the upswing, an indication the country’s housing market is finally poised to cool off and it’s the beginning of the end to historically low rates.
It’s a move being closely monitored by those with variable-rate mortgages trying to cling to minimal monthly payments for as long as possible.
Is now the time to lock in to a fixed rate?
“That’s the million-dollar question,” mortgage broker Paula Roberts said Monday. “We’ve had a great ride for the longest time, and we know the ride’s almost over.”
Variable-rate mortgages have recently dipped as low as 1.5 per cent, Roberts said.
“It’s really difficult for someone who has 1.5 per cent to have to lock in to 3.75 per cent. That’s a big jump, and that’s when grief sets in a little bit. But 3.75 per cent, historically, is still a very, very low rate.”
Canada’s two biggest banks, Royal Bank of Canada and Toronto-Dominion Bank, as well as Laurentian Bank, announced Monday they are raising the rates they charge on certain fixed-rate mortgages, including the benchmark five-year mortgage, which jumped 60 basis points to 5.85 per cent, effective today.
“This is actually a fairly large increase reflecting what’s happening in the bond market lately,” said Benjamin Tal, senior economist with CIBC World Markets.
Anticipation over the Bank of Canada raising its overnight lending rate, possibly ahead of schedule, is pushing up bond yields, Tal said. And rising yields puts pressure on fixed-rate mortgages.
RBC and TD also hiked four-year term closed mortgage rates by 40 basis points to 5.34 per cent.
RBC’s three-year product rose by 20 basis points to 4.35 per cent, while the equivalent at Canada Trust gained 40 basis points to 4.7 per cent.
In addition, in mid-April new rules come into effect that tighten lending requirements, making firsttime buyers meet an income test that says they can make payments based on the five-year fixed rate.
The two effects combined are certain to price some prospective buyers out of the market, said Gregory Klump, chief economist with the Canadian Real Estate Association.
“Certainly at the margins, this will have an impact,” he said.
While the hikes are significant, Klump said the heightened rates are still very attractive.
But analysts say that price growth in Canada’s housing market, which for years has been red-hot and even remained robust during the recession, is not sustainable.