RBC Raises Rates. Others Should Follow

RBC Wow.  RBC isn’t wasting any time following today’s bond market rout.  It just announced a variety of fixed-rate increases:  Press Release

Among other increases, four and five-year fixed rates are up 0.35%, effective tomorrow.

Other banks should follow soon.

RBC’s new trend-setting 5-year fixed “special offer” rate is now 4.54%.

  1. As a person currently in a Closed Variable mortgage with RBC, I am paying as if the rate is 4.4%, but the product is prime -0.85%, so our effective rate is 1.40% (or 1.45%)…is it time to jump ship and hit that fixed rate?
    We are absolutely killing our mortgage right now, and from what I have read, it is not as if the BoC is planning major hikes, but nothing is ever set in stone and who know whats the forecast is beyond the end of 2010..
    Thanks for the site, it is very informative, and I appreciate the updates you both provide!

  2. @ Paulo – I am in roughly the same position as you, and I am committed to sticking with my prime minus variable. Even if the economy recovers faster than forecast and the BoC is forced to raise rates “early”, they would have to increase by more than 3.0 percentage points to get to an equivalent rate, and this would take place over a period of several months. And in the meantime you wouldn’t be reducing your principal at anywhere near the same rate.
    Everyone’s situation is different, but as you note, nothing is set in stone. The only thing you know for sure at this point is that 1.40% is MUCH lower than 4.54%. Of course, if your sitaution is such that a slight increase in your payment is going to cause big problems, you might need to think about it.
    My $0.02.
    Al R

  3. Hi Al & Paulo,
    You’re both totally right to question a conversion from the excellent rates you have. Like Al says, everyone’s in a different place. If you have a prime – 0.50% or better you have to evaluate totally differently than someone that’s prime + 0.50%. Your personal financial constraints are another huge consideration.
    It’s often helpful to talk to your mortgage planner or bank and have them run an amortization comparison using different scenarios. That let’s you see how you much you’ll pay if rates go up 2%, 3%, 4%, etc. Then you can compare that with the cost of converting to a fixed rate over the remainder of your term.
    Have a great weekend,
    Rob

  4. In order for you to benefit from a conversion, rates would actually have to climb significantly above the current rate. Since you are paying 1.4%, you are saving a significant amount of money right now and rates would have to go up to 5% or more before it would start to create a deficit in your savings. If you have worries about the rates going up that high, I would reduce my payments (you only need to pay the 1.4% payment rate unless you somehow are committed to a 4.4% rate) and place that savings in a low risk or no-risk investment account. Once the rates increase above 4.4%, you can then use these savings to pay for the increased amount.

  5. hey patrick, I have cost certainty with my closed variable at 4.4%. This product is setup so even if the rates go high, I still pay at this rate. In effect, I could be going in reverse in my mortgage if rates went up. I can always voluntarily pay more on my mortgage if it comes to that.
    While we are living in a resonable space right now, I wont make as much money as I have in the previous year, however indications are positive going forward, so I am not totally gripping over the rates and where they are going, but I am concerned…plus I love paying ~ 1200 in principal each month base on the current status of the mortgage.
    I went and spoke with my RBC banker yesterday, and first of all they werent aware of the rate hike until I told them (a credit to how quick canadianmortgagetrends post news), but they did confirm your rates hikes while I was in the office, and they gave me a rate hold of 3.79% on a 4 year fixed rate but I am going to pass.
    Rob, have you ever done an article on the rate trends over the last 20 years or so? My banker told me that rates usually rise and fall along with historic Canadian recession and growth periods. She also said that historically there is a 4-5 year term in between recessions in Canada. I would like to know if my banker is telling me sweet nothings or not..

  6. i am in different situation. i will get my condo next month and closing will be around april 2010. currently i have pre-approval from bank till end of nov for 5yr fix @ 3.99.
    i am sure by apr2010 or even jan2010(apr-90days), rates will be changed compare to last week.
    can anyone suggest something where i can get today’s rate in april2010?

  7. My closing date is end of nov 2009. have a preapproval of 5 year closed variable @ 2.10(prime-.15).looking at the BOC promise of no rate hike till 2010 Q3,i thought of going by variable open at 2.10. but the rate hike news from RBC is some thing making me rethink. as current 5 yr fixed rate in the market is @3.6,shall i go for it to safeguard from any big hike ? any suggestion..how fast boc can hike rate and to what level..
    sb

  8. Hi SB
    Just my opinion…
    I would consider where you are going to be in 5yrs
    Rates now for 5yr fixed are historically low. When the BoC
    starts to move rates they have some catching up to do to get things back up to speed (economy wise)
    Ben Tal mentioned the other day rates could move as much as 200-250 basis points over 24months
    Maybe in taking out your 5yr you also consider higher payments to offset when you renew.
    I think it’s safe to say it’s a given that in 5 years from now 5yr fixed rate will be a rude awakening for people if they dont plan today
    just my opinion…
    by the way who has 5yr fixed at 3.6
    D

  9. Dev, you will not be able to secure rates of today for a closing in April. You could look at National Bank who had a 6 month rate hold in effect for a slightly higher interest rate.

  10. Adam, it depends on the builder. My builder had a deal with the bank that from the time of signing an agreement, to the closing of the house, I receive the LOWEST rate for that specific term. So, if rate went up or down, you always got the best rate during that time period. Not that it helped me, since I leaped into a variable one anyway!…

  11. Dev: brand new construction requires what’s called a progress draw. If you’re buying a condo, there are options to secure a rate but not the lowest one. No lender will guarantee today’s rates for a year, certainly not without a premium.

  12. PAULO:
    Sell your house now, while you can still command a high asking price. Rates are going up. They just need to double from 4% to 8% and you wont be able to pay the monthly amounts.

  13. @ Al – You really think it’s probable that the Bank of Canada is going to raise rates by ~6.60 percentage points over the next few months? Paulo is paying 1.4%, remember.
    That might qualify as the most bullish stance on the economy that I’ve ever seen. It’s probably a bad idea to sell your house, incur realtor fees, not build up any equity in a rental, etc., on the EXTREMELY remote chance that interest rates rise well beyond the highest point in the last 10 years.
    Al R

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