Some homeowners across Canada, and those trying to enter the market, should expect to spend more money on mortgage payments as both RBC and TD Bank have raised mortgage rates in recent weeks.
And it’s only going to get more expensive.
“I do expect rates to continue to push up in the coming months and into next year, as opposed to the opposite,” said James Laird, cofounder of RateHub.ca and president of mortgage brokerage CanWise Financial.
The TD and RBC hikes have been relatively modest — 15 to 30 basis points — but do result in an increase in monthly mortgage costs.
Here’s what you need to know.
If you already have a mortgage that’s locked in, you’re in the clear until it’s up for renewal. Variable rate mortgage holders, as well as new buyers, will see things change.
Housing data released Tuesday – the same day as RBC’s rate hike announcement – showed the average price of a home in October was just shy of $482,000. Excluding the greater Vancouver and Toronto areas, the average price of a home in Canada was just over $360,000.
Mortgage calculators can help Canadians get a handle on the impact of these increases. Here are some examples of how RBC and TD’s rate changes will increase the mortgage payment on a $360,000 home, with 20 per cent down and a 25-year amortization period:
- RBC’s raise for its special offer, five-year fixed rate mortgage from 2.64 per cent to 2.94 per cent: $1,310 to $1,354 — $44 more per month.
- TD’s variable rate mortgage hike from 2.7 per cent to 2.85 per cent: $1,319 to $1,341 – $22 more per month.
- For a $700,000 mortgage, the same changes in rates would increase the monthly payment by $85 and $42, respectively.
- For a $1 million mortgage, the same changes in rates would increase the monthly payment by $121 and $88, respectively.
“It doesn’t really change how much someone can qualify for, it just changes what their mortgage payment is each month,” said Laird.
Canadians have enjoyed historically low interest rates and Canada’s hot housing markets have soared to levels out of reach for many. As a result, governments at all levels have introduced measures, like B.C.’s foreign homebuyers tax, to cool the markets.
But the main factor for the recent rate change is volatility in the global bonds market, Laird explained, prompted by the U.S. election.
“Bond yields have moved dramatically in the last 10 days, up almost 50 per cent in two weeks,” said Laird. “And that’s really one of the key costs of funding mortgages in Canada, is the price of money, which is bond yields.”
RBC said a number of issues factored into the hikes.
“We take a measured and careful approach,” said Mary Ellen Brown, senior vice-president of RBC’s Home Equity Financing.
“We ensure that the movement that we make is reflective of changes that we’re seeing in the marketplace.”
Shop around and lock in the best mortgage rate
While Canadians are seeing a rise in mortgage rates, they still remain incredibly low, Laird said.
“Below 3 per cent is, historically speaking, unheard of … Make no mistake, we are still in an unusually low-rate environment.”
If you’re shopping for a home, it’s a good idea to lock in at the current rate. This can often be done for 60 to 120 days.
“Anyone considering getting a mortgage…they should be getting pre-approved, they should be getting locked in. We do think that rates are going to continue to push up.”
And like anything else, shop around for a rate. Go to your home bank, ask your friends for mortgage broker referrals, and look online in order to find the best rate possible.