Royal Bank of Canada, the country’s largest mortgage lender, is poised to raise interest rates on home loans next week — a signal perhaps that the era for record-low rates may be beginning to draw to a close.
RBC says the increases will range from one-tenth to two-tenths of a point, depending on the type of mortgage. The biggest increase affects a five-year closed mortgage that RBC has been offering at 3.09 per cent – a promotional rate below the regular rate of 5.14 per cent.
The special five-year rate will rise to 3.29 per cent.
Banks have been offering advertised rates of under 3 per cent on the benchmark term loan over the last year, hoping to entice buyers into the real-estate market and grab share from rivals. The five-year fixed term loan is by far the most popular mortgage product.
RBC, with about $195-billion in outstanding home loans, is the country’s largest mortgage lender (as well as deposit taking bank). The move to raise rates will likely ripple out to see competitors like Scotiabank and TD Bank start lifting their rates.
Royal’s one-year closed mortgages will rise 0.14 of a percentage point to 3.14 per cent and there will also be increases of one-tenth of a point for two-, three- and four-year mortgages.
Royal is the first of Canada’s major banks to announce higher mortgage rates since Canadian bond prices plunged last month. Canada’s banks use the bond market to fund their commercial lending activities so other mortgage lenders may follow RBC’s lead.
Policymakers in Ottawa will not mind seeing rates rise amoung commercial lenders. Ottawa has actively worked to cool the housing market which economists say has grown overvalued in many major cities because of the ultra-low rate of borrowing.
With files from Canadian Press