Two of Canada's largest banks are raising rates on some fixed-rate mortgages, a reminder that mortgage rates can go up before the central bank's key interest rate does.
The move comes as many Canadians with variable-rate mortgages have been anxiously watching for signs of exactly when the Bank of Canada will begin hiking interest rates, in a bid to wait and lock into a fixed rate mortgage at what they hope will be the ideal time.
Royal Bank of Canada said Monday morning that it is raising the rate on three-year closed fixed-rate mortgage by 0.20 per cent to 4.35 per cent. The four-year closed rate will increase by 0.40 to 5.34 per cent, and the five-year closed rate will rise by 0.60 per cent to 5.85 per cent.
A short time later Toronto-Dominion Bank followed suit, saying it is raising its three-year closed fixed-rate mortgage rate by 0.40 per cent to 4.70 per cent, its four-year rate by 0.40 per cent to 5.34 per cent and its five-year rate by 0.60 to 5.85 per cent.
A spokeswoman for Royal Bank said that fixed-rate mortgages tend to move when bond yields move.
“The rates are tied to our funding costs, which change day to day,” she said. “Our long-term funding cost has gone up significantly since December.”
Sal Guatieri, a senior economist at Bank of Montreal, said the driving force behind the change in Canada's bond market is the notion that the Bank of Canada might need to raise interest rates sooner than previously thought. The market's expectation is pushing up bond yields.
Mr. Guatieri still believes the central bank is on track to raise rates in July, but he acknowledges that further strong economic reports could cause the bank to move sooner.
However, today's activity shows that mortgage rates can be influenced by expectations alone.
