RBC Lifts Fixed Rates. Big.

RBC RBC has sharply turned the rudder on mortgage rates.

At 8:00am ET, it hiked its posted 5-year fixed rate 6/10 of a percentage point, to 5.85%.

That’s the biggest one-day jump in posted rates since 1996.

TD followed shortly thereafter, and other banks are probably not far behind.

“The rates are tied to our funding costs, which change day to day,” said an RBC spokesperson. “Our long-term funding cost has gone up significantly since December.” (Globe story)

Both banks also raised three and four-year rates, by 0.20 and 0.40 percentage points respectively.

5-year bond yields (which drive fixed mortgage rates) are now sitting at 2.90%, a 17-month high.

What this means to you:

  • If you need a pre-approval, get your application in fast.
  • Expect delays in pre-approvals due to increased application volumes
  • If you’re a broker floating rates for your clients, consider locking them in.
  • If this 5.85% posted 5-year rate holds until April 19, that will be the new qualifying rate for variables and 1- to 4-year fixed terms.
  • If your closing date is over 120 days, but within six months, consider a 6-month rate hold through a National Bank-approved broker.
  • If you don’t have time to submit a full application, you can lock in a 3.89% 120-day rate hold at ING.  Once you’re ready to close, your mortgage planner can then process the application for you, and sometimes provide a better rate.
  1. I knew it was too good to last. I’m just glad it was RBC who was first to raise rates. Their rate drop a few weeks ago was nothing more than a PR move IMO.

  2. It seemed like there was no logical explanation for what they had done (in terms of a narrower spread being the new norm). I guess it was just a stunt after all..
    Also glad to have a fixed locked in last week because a 0.6% higher rate today would add about $150 to my monthly. Now I can still afford cotton candy.

  3. Thank you for updating us on all mortgage news, you are doing a fantastic job and I really appreciate it.
    I have a question in the light of these rate hikes.
    We are building a house with possession date in early September. According to your advice we should consider a 6-month rate hold through a National Bank-approved broker.
    Will it be a higher rate for a 6-month rate hold? Where can I find a list of National Bank-approved brokers?

  4. Thanks IS, Yes, the 6-month hold has a slightly higher rate, but paying 1/4% more eliminates the risk of paying 3/4% more. And if rates drop, National Bank will adjust your rate lower accordingly. Most large brokers that you can find on Google are National Bank approved. Alternatively, you can email me if you need a referral in your area. Cheers, – Rob

  5. Nice. Assuming all goes as planned (which is of course never guaranteed), I timed this perfectly for once. I got my application in a little while ago, but the payout for the penalty from my existing mortgage isn’t for a couple of weeks yet. This increase will reduce my payout penalty noticeably.
    For those considering switching mortgage lenders, TODAY is the day to do it.

  6. It is not surprising that rates jumped considerably this week. The last few weeks of promo deals have just been a last grab for business before the Insured Mortgage Program offered by the Federal Government closes down on March 31st. The banks have got billions from this program and now have to tap other more expensive sources of funding.

  7. Let’s say you are one of the happy owners with a variable rate mortgage around 2%. When fixed rates started rising you were planning to switch. Big shock when your mortgage broker calls today.
    Lets assume the fine print in the mortgage allows the owner to switch to a discounted 5 year. On a 500K mortgage (Toronto size) here is the bad news.
    Current variable at 2.25% – $1721
    New bank 5 yr. disc. rate 4.35% – $2308
    Old bank 5 yr. disc. rate 3.75% – $2130
    I imagine most people won’t switch because they can’t afford the increased payments and will live in denial about rising bank rates. When Carney pulls the trigger in June the lender will call with the first of many increases to the variable mortgage payments. Expect more listings in the fall than usual.

  8. Knew it was too good to last locked two weeks ago at 3.74%. My banker told me that they have reduced the discounts available as well. At that time they gave me posted minus 1.65 now it is 1.38.

  9. As I sit here (Variable) Prime -.40 with around 3.5yrs still left, I feel the push to lock, but will not. Prime will have to get to get to about 4.15 and then i will be paying the current 3.75.
    The impact i am currently making on my principle is too sweet

  10. Jarrett, the prime rate from your bank is the BoC prime + 2.25 minus your discount of 0.40. The current BoC prime is at 0.25 %. It only needs to move to 2% (which is historically also a very low rate) and you will be at 3.85. There is also something else to consider: in 3.5 years you will have to renew anyway. Consider what would be the rates than. I think they will be higher.

  11. That’s exactly how I looked at it. I have had a variable at prime -.6 since beginning of 2008 and with 3/years left to renew went and locked in to a new 5/year term at 3.7% with RBC.
    For the first 1.5 years it would be better to stay with what I had but extending the term another 2/years and where rates have to go just to get back to normal I will have saved huge.
    BoC prime only has to go up 2% for me to be even with fixed rate.

  12. I had the same variable rate as you and managed to lock in today at 3.8 with TD. I think that we will “lose” in the short term, but will have some significant savings in the long term. The only thing that can play a joke on us is if in a year or two the economy hits a second recession and BoC is forced to lower the rates again. I really hope that this will not happen :)

  13. Are you sure that you will have saved huge . . . ?
    I have Prime-0.6 currently. And the amount saved by staying with a VRM is way more than I save over the next five years even if the rates were to rise by .5% at *each* of the next 12 rate announcements starting in July 2010, plateauing at 6%.
    This is a much faster rise than most economists have projected, and if they are right then all the more saved.

  14. Bob,
    BoC is 0.25%, your bank is likely at 2.25%, meaning if they go up 0.5% over the next 12 rate announcements, your rate will be 8.25% minus 0.6% leaving you with a hefty rate of 7.65% Thats ugly however, as you say, rates likely will not increase at that pace.

  15. I still think you guys are crazy if you think rates are going to grow like a weed. We are so tied to the US, and their economy and dollar stink right now and plays a huge roll in what the BoC does. Inflation is only one factor in determining rates…
    Even our PM is worried about a double dip recession……along with the rest of the world.
    if that sounds negative, sorry its the truth

  16. Problem is, central banks are not always in control. For example, if the world stopped buying US treasuries tomorrow, rising bond yields would force up mortgage rates regardless of what the Fed wants. At least that’s my understanding.

  17. I currently have a prime -0.75% variable rate mortgage, with the 35 months remaining, and I am not thinking about locking in. As we the BoC moves interest rates up, it is my understanding that the strength of the dollar also increases. If the dollar increases this would have many negative effects on industry. Our recovery has been based greatly on the influx of stimulus money. The States are still in a recession and we are tied to the strength of their economy. There will be rate increses but not at the rate many people think.

  18. Why try and predict rates from your armchair? It is pointless. Look at 5, 7 and 10 year bond rates and that is likely your best clue to where the interest rate market is going. (Which, by the way, suggest a steep increase initially, followed by a very slow rise, if any, after that.)
    You should lock-in based on risk of not being able to pay and worse-case scenario predictions. If you can do better at predicting rate hikes than the multi-billion dollar bond market, then why waste your time trying to save a few thousand dollars on your mortgage when you could make a killing in the bond & financial markets?

  19. My mortgage is up for renewal May 1. I’m just coming off a prime – 0.65% rate (5 year term) and am in the process of resigning at prime – 0.50% (5 year term)
    Due to the rates being so low, I dropped 5 years off my amortization too. *fingers crossed*
    I don’t think the rates will go up that much that fast. Too many people will lose their homes.
    I’m quite comfortable sticking with variable.
    P.S. Love this site. :D

  20. Very Useful site.
    went to my Banker today and going again saturday to sign my 1st mortgage.
    Banker offered P-.3 for 5Yr Ver.
    3.6 for 5Yr Fix.
    Not sure what i will be doing…..

  21. Don’t forget that taxes are going up in Ontario and BC on July 1 and federal and provincial government spending will have to be curtailed to deal with deficits. Add in the weak US economy (10% unemployment)and it all adds up to a relatively weak recovery in Canada. It that environment the Bank of Canada will probably not be able to raise rates as much as it usually would.

  22. Yes your right,China is buying up the US debt and they what a higher return on there money, spent spent till your broke,print more money who cares- I wish I had a money tree.

  23. BOC-has not control, the bond market is in control.Do to all the debt the USA owns. They will increase the rate to fight inflation.If it goes above 3%.

  24. Lots of opinions. I’ll toss mine into the mix…
    Inflation derives from the interaction between fiscal supply and demand.
    Interest rates derive from the interaction between monetary supply and demand.
    There is indeed a relationship between inflation and interest rates, and between monetary and fiscal policy.
    However I think it is very foolish to presume that the relationships of the past 30 years are carved in stone and can be reasonably used to predict what is coming.

  25. perfect fodder for Mortgage Brokers to persuade clients to lock in now! Will likely see a surge in mortgage Applications (which have already been very high across Canada for the past 6 months) as people scramble to get approvals before rates rise too much. However, I think any rate rises will be short-lived due to the dire economic picture across most of the developed world which is not improving anytime soon. Inflation pressures in Canada are likely to subside in the next few months after the HST, new Mortgage rules, phasing out of Stimulus spending – the list goes on.
    Interesting times!

  26. As a mortgage professional I find the insinuation in your first sentence insulting and uncalled for.
    There is nothing wrong with telling that people lock into the lowest rates in history if locking in is the right move for the borrower.
    Regardless of your “opinion”, we might not see these historically low rates again for years.

  27. I couldn’t have said it better myself Chris. Too many people talk like they know where rates will be next year. If they really did, they wouldn’t be wasting their time blabbing about it. They would be too busy making $$$$ hand over fist trading bonds and currencies.

  28. A lot of people will be calling the lenders to lock in there mortgage to a fix rate today. Well the mortgage agents will make lots of money and there for can pay the new GST tax on there commission !!! And the low income family will then get a bigger rebate.Works for me.

  29. Jim
    With due respect, can you please comment a bit less? Your posts are filling up space and I can’t understand what you are saying half the time.
    Frank

  30. RBC offering prime – .10, how can you get more out of them? where are people getting prime less .5? what banks offering that rate?

  31. Hey JC, where are you re-signing at P-.5%? Best I got offered was P-.4% at Scotia. “owner” was also asking at one point in this thread.
    thanks!

  32. I locked in a fixed rate, only because I’m highly leveraged and didn’t want to worry about the possibility of soaring interest rates.
    If I wasn’t, I wouldn’t be too quick to lock in a fixed rate. The US is really hurting, and a double recession is still a possibility despite all the positive buzz (not numbers) that’s out there.
    88.5% debt to GDP, 2.2 trillion spending, 3.5 trillion spending, 1.4 trillion deficit… the American economy is a train wreck waiting to happen. What happens in the US will have a large impact on what happens in Canada.

  33. They say it is always darkest before dawn. Don’t buy into headlines that the world is coming to an end again. The US will survive and recover, just like they always have.

  34. What you say is very true, society is always progressing and history tells us that things always get better over time.
    With that being said, history also tells us that all great civilizations come to an end. What you say about surviving and recovering was probably also said in the Roman, French and Spanish Empire, or England before WW2. Don’t get me wrong, the US will always be relatively strong compared to other countries, but that doesn’t mean they’ll always be the top economy in the world, and probably won’t be for long.

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