Robert McLister·
Mortgage Rate Trends
·

RBC Raises Fixed Rates 1/4%

Percent growth Bond yields keep rising and fixed rates keep climbing.

Just after midnight, RBC Royal Bank announced it will push up fixed rates by another 1/4 percentage point, effective tomorrow. This change applies to all fixed terms.

The new 5-year posted rate will be 6.10%. After April 18, this will also probably be the new qualification rate for variable and 1- to 4-year fixed mortgages .

The industry’s benchmark 5-year fixed “special offer” rate will now be 4.70%.

RBC says: “We have held off from handing [rate increases] on to consumers but now it has become necessary. The rise is tied to our long-term funding costs which have gone up considerably.”

No other banks have followed RBC yet, but they likely will soon.

Robert McLister
Robert McLister
Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, and Founder of mortgage broker intelliMortgage Inc., RateSpy.com, a website comparing Canada's best mortgage rates and the reverse mortgage advisory firm, Seniors Equity.

35 Comments

  1. Wow.
    Even taking the “five year funnel” into account, people have gone from qualifying based on the 3 year fixed rate to a suddenly much higher 5 year rate.
    Demand in first time buyers market could change a fair bit after the 19th…

    Reply

  2. Just inked my 5yr fixed at 3.6% (with TD) Couldn’t have done it without Canadian Mortgage trend’s input. Thanks a million!

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  3. Would the rate lock-ins from late March carry them until mid summer? ie. If you “qualified” in March, do the April 19 rules actually apply to you?
    If they don’t, then there just might be a summer frenzy of buyers out there trying to take advantage of their uber low March (or even early April) fixed rates.

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  4. Hi, Tom:
    when did you get 5yr fixed at 3.6% (with TD)? Is that possible for U to provide the banker’ phone number?
    Thanks a lot!

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  5. What is the industry’s benchmark 4.70%? I thought it was 5.39%. What number are we supposed to qualify out clients under now?

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  6. Hi Emily: The application date of the mortgage was a few weeks ago, just before the fixed rates jumped on March 29: that’s how I got the good fixed rate. It was my knowledge of the mortgage market, mainly through reading CMT, that gave me the confidence to act. Really, the best one can expect to do is be well informed to make a good decision at any given time, and to deal with trustworthy people (eg TD).

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  7. Hi Diva,
    The 4.70% rate is simply an approximation of the new “standard” for discounted 5-year fixed rates. In practice, many people will be able to negotiate at least 20-30 basis points off this rate.
    On firm purchases, switches, and refiances, most lenders are allowing you to qualify borrowers today under the lender’s current qualification rates–which vary by lender.
    On April 19th the qualification rate will change and will likely become ~6.10% for both variable and 1-4yr fixed terms. For 5-10yr fixed terms the qualification rate will be the contract rate.
    Cheers,
    Rob
    P.S. Folks should chat with a mortgage professional if they have any questions about these numbers, because there are exceptions.

    Reply

  8. I’m fortunately not the pessimistic type, but my realtor buddies living in their Toronto escapism philosphy ( toronto is a world class city; too much investment coming in for real estate ever to fall), need to look at some “real” numbers. If prices can climb because of extra purchasing power with lower rates, then prices can “adjust” – let’s be polite – with less purchasing power down the road
    The following are based upon the avg $400,000 mtge in Toronto
    1) a variable buyer last week, qualifying at 3.45% discounted 3 yr rate, today at 5.89%, has lost $ 140,000 in purchasing power (come april 19, and now more with this 1/4% rise today, to posted at 6.10%). This is a real shame when variables now make huge economic sense- dont believe me? compare taking fixed 5yr, at discounted vs a variable, WITH THE SAME PAYMENTS, and adjust the variable rate up 1/4% , every 3 mths, for the full 5 yrs (ie up 5 full percentage points) and you still have a lower variable rate mtge by $9,000
    2)a rental buyer- because of new rules will actually lose $ 490,000 in purchasing power ( i used a salaried income of $ 75K, rent of $ 3,000/m, and he already rents or owns at $ 1,200 /m existing housing costs)
    3) A typical buyer a year from now, with 2% higher mtge rate, ( we have already gone up 1% from when I did this a week ago) will lose $113,000 purchasing power
    4) the self employed ( unless genworth and aig continue to NOT change) might lose $ 113,000 in purchasing power. ( this is not as direct, but compare moving from fully discounted rates- good credit, to higher – good credit, alternative lenders)
    5) and finally- how many buyers have we “borrowed” from the fall and spring of next year in the urgency to beat the HST, rate increase etc. Will these all be replaced?
    The above are not horror stories, but nitches in the marketplace of existing buyers that will be buying less, (or notat all) this time next week (post april 19), or next year, post increases in rates. So what does that do to real estate values?
    Well ……..we live in a world class city; everybody wants to live here;…. higher earning buyers will simply replace these buyers and ………..

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  9. drmortgage, the thing people keep forgetting is this….this real estate market has shown incredible resiliency through a global recession and weak employment market. Yes, rates are rising just now but at some point in the future they will stop rising. And by then the recovery will be full steam ahead with companies hiring tons of staff once again. When that happens, people’s incomes will be significantly higher than now and yes, rates will be higher but with people feeling wealthier, it will keep the purchasing power reletively stable. The idea that people have ‘lost’ $100,000 or whatever of purchasing power is very misleading and using only ONE statistic, namely mortgage rates. There is a wealth of other data that needs to be analyzed such as income levels and consumer sentiment to determine if people have lost any purchasing power at all. In some cases people are still GAINING purchasing power.

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  10. robb
    I guess we are just debating timing; some of this (real) loss of purchasing power is immediate. The timing of the increased economics (“at some point in the future”) to offset this, may not be so immediate

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  11. Nah. A booming economy means higher interest rates which means smaller loans which means lower house prices unless incomes go up to compensate which won’t because of global wage arbitrage…
    The gains have already been made thanks to emergency interest rates and taxpayer subsidized reckless lending. There’s only one way prices can go from here and it ain’t up…

    Reply

  12. drmortgage,
    You might be right if the average buyer looked beyond the monthly payment. My bet is that house prices hold despite interest rates as long as there is money in the buyer’s pocket.

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  13. robb
    I’m in the V rather than the W camp as far as economic recovery. I’m an optimist.
    I do believe though that the unprecedented debt governments have taken on is going to restrict purchasing power in the future.
    I very much hope what you say will happen. Hopefully homeowners can hold onto most of the gains.

    Reply

  15. It would be silly to assume that in this “jobless recovery” people’s salaries are increasing. I don’t know about you, but I don’t know about a lot of folks who have received pay increases this past year. If there was one, it was typically just barely enough to cover inflation.
    This month’s increases represent an 8% increase in mortgage costs. So for a family wishing to purchase a $500k home, that means they will need about $650 more gross income per month in order to still be able to afford that house.
    Doesn’t mean prices won’t stay flat (after all, they’ve gone up in a recession), but to say that it has no effect would be inaccurate.

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  17. There’s no need to assume – you just have to look at the monthly data provided by StatsCan.
    Also, the notion of a “jobless recovery” has proven to be incorrect, at least to this point. Quoting TD Economics’ March 12 Canadian Employment Commentary:
    “…the labour market performance during the most recent recession has been significantly better than during the last two major downturns, with the spike in the unemployment rate only half of that in each of the last two recessions… The recent job market performance is the furthest thing from a jobless recovery.”
    http://bit.ly/9a1w9b

    Reply

  19. Thanks for your replay, Tom.
    I really should recharge myself by visiting this helpful web site. Just booked an appointment with TD today, target short term for now, the rates TD offered me are fixed 2.3 for one year and 2.65 for two years. Thank you for sharing your information with me. Have a nice day.

    Reply

  20. $50b of short term gov’t stimulus spending (all levels) buys a lot of jobs for a couple of years.
    Consider…
    $50k per job, x 2 yrs=$100k
    $100,000 x 500,000 = $50b
    With a labour market of approx 20m, 500,000 jobs represents another 2.5% unemployment.
    Further….our economy needs to create 20,000 jobs a month just to break even due to population growth.

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  23. Let me take a crack:
    1) Analysis suggests that the stimulus package has had a very muted impact on the overall economy. It certainly is not credited, even by its most passionate advocates, with having created/maintained 500,000 jobs.
    2) If you do the math (CDN population x annual growth rate x employment rate) for the number of jobs Canada has to create each month just to tread water, you get a number closer to 12,000 than 20,000.

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  24. Just checked, and annual wage growth came in at 2.5% in the last labour force survey – the same as in the previous month.
    Take away inflation and you have a bit of growth, albeit not much.

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  25. Man am i pissed at my Financial instition. I sent an email to them on March 29/10 I asked if I locked in that day from my VRM what would the rate be (answer 5 yr @ 3.69%) I said okay, thank, how long do i have to make a decision? (reply 90 days) its now 2 weeks later and i have been advised i can not get this rate (now 5 yr @ 4.19) cause i did not submit an application to do so. MY frustration was that I was not advised or told that in order to hold this rate i needed to submit an application. I thought my email communication was my commitment to the 3.69 rate.

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  27. More players on the bandwagon. CIBC, Scotiabank and National join RBC in mortgage rate increase. TD and BMO will probably announce later today.

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  29. You’re right. I should’ve clarified that I was mostly referring to Alberta, where unemployment is still slowly rising (albeit slowly).
    Regardless, a post-inflation salary increase of 1% does not support the rate increases and associated increased expenses they would bring.

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  30. TD and Laurentian join CIBC, RBC, Scotiabank and National. BMO is the last holdout.
    http://www.cbc.ca/fp/story/2010/04/14/2905631.html
    In 5 days all mortgages under 4 year term and variables will have to qualify at 6.1%. 5 Year fixeds at major lenders will be around 4.5% which is about .8% higher than a month ago.
    Can you hear the air leaking out of the real estate bubble?

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  31. Just my 2 cents. I feel that the 5 big banks are scaring people into fixed rates. All of my morts at present are variable from 1.5 to 2.0. My bank phoned yesterday and asked if I would move to fixed. I said NO. I have the cash to pay all the morts out. I am going to ride this wave. I feel that rates are not going to increase that fast. If they do, I feel they will correct down just as fast.

    Reply

  32. Nah, the Bank of Canada is scaring people into fixed rates. They themselves have said that rates are going up. And I personally will take the Bank of Canada’s word for it.
    Remember, the current BoC rate is 0.25%. That’s 1/4 of a %. Just think: When was the last time it was there?
    Now it’s quite true that it’s possible that a variable rate mortgage may still be cheaper over the next few years, but you can be 99% sure they won’t be as cheap as they are today… which is why so many people were locking into the uber low fixed rates in March.

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  33. What I don’t see people considering is that Canada’s economy is largely commodity based. Money is mostly either found (gold/oil/etc) or grown (beef/wheat/potatoes).
    Commodity prices were on a tear during the early 2000s boom, so Canada’s economy benefited HUGE because all/most commodities were overpriced.
    So what happens to the Canadian economoy under a sustained period of slow global growth (not just a short-term crash)? I suspect we are all in for a bit of a purchasing power hangover…
    One way or another, a house in Lethbridge, Alberta should never cost more than a condo in downtown Chicago.

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  34. Adendum: to some extent the effects of the global economic crash may not have been fully felt in Canada yet because of the INSANE commodity futures contracts that were signed during the boom are only now being fulfilled.

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  35. just a note in the variable- fixed discussion. The people that will lose are the people who go variable with the intent to later go fixed. They will get a small savings up front, with a large loss (over what they could get now on fixed) when the fix their rate down the road. So go variable or go fixed but if you go variable, you are going on it for the ride.
    > as a side bar of what I had said earlier, if you agree to pay the same payments on variable as you will be forced to pay on the fixed, you can actually have variable rates go up by 1/4% , EVERY 3 months, for the next full 5 yrs, and on a $400k mortgage be $9,000 lower in principal owing going variable. I am not trying to sell variable, but your risk, using that curve is that prime will either go up more than 5% in the next few years or that prime will go up much faster in the first couple of years than 1% per year. But the “success” of going variable is to pay payments at the higher amount, and then hang on for the full ride.

    Reply

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