Mortgage Matters

Last Updated: Monday, March 29, 2010 | 11:23 AM ET
CBC News
Royal Bank and TD Canada Trust announced Monday they are increasing several mortgage rates by up to 6/10ths of a percentage point.

The biggest jump is attached to the popular five-year fixed closed rate, which moves from 5.25 per cent to 5.85 per cent at both banks. That’s the posted rate, which is routinely discounted by the big banks.

RBC’s new discounted rate for the five-year term also rises 6/10ths of a percentage point to 4.59 per cent. TD’s rises the same amount to 4.55 per cent.

Both banks also raised their three-year and four-year fixed closed rates. The posted three-year rate at Royal Bank climbs one-fifth of a percentage point to 4.35 per cent, while the posted rate at TD jumps 4/10ths of a point to 4.70 per cent.

The posted four-year rate at both banks jumps 4/10ths of a percentage point to 5.34 per cent.

Other banks are expected to follow suit. The new rates, effective Tuesday, represent the first hike in Canadian mortgage rates since last October.

Variable mortgage rates, which rise in tandem with the Bank of Canada’s key overnight lending rate, are unchanged. But they are likely to be heading up soon too.

Bank of Canada governor Mark Carney warned last week that inflation was higher than expected. That had some market watchers forecasting that the central bank could move to raise its key lending rate as early as June.

The key rate has been at a rock-bottom 0.25 per cent since April 2009 to help the economy recover.

Fixed-rate mortgage rates tend to move higher when long-term bond yields rise.

A survey released last week by RBC found almost two-thirds of respondents expected the cost of servicing a mortgage to rise this year.

Mortgages Fixed Rate Mortgage, Interest Rate Increase, interest rates, Rate Hike

As a result of stubborn inflation and stronger then expected economic growth signs are becoming more clear that Canadians could be seeing interest rate hikes sooner then previously anticipated.

Bank of Canada’s Mark Carney did not directly state that higher rates were on the way however, he did issue his clearest indication to date that his year-old commitment to keep the policy rate at the record 0.25 per cent until July was “expressly conditional” on inflation remaining tame.

In a speech to a business audience, the bank governor noted that both underlying core inflation and economic growth have grown slightly stronger, although broadly proceeding as expected.

The tip-off to economists was that he changed his language on his conditional commitment on interest rates, which has led to historically low rates for both consumers and businesses in Canada and helped the country recover from recession.
“This commitment is expressly conditional on the outlook for inflation,” he told the Ottawa Economic Association.

It was the first time Carney has undercut the commitment in such pointed language.
“They still have considerable latitude, but the changes that would be required to their forecast are consistent with hiking rates sooner than markets are anticipating,” said Derek Holt, Scotiabank’s vice-president of economics. He said Carney may move as early as June 1.

But Holt stressed that Carney’s overall message to Canadians is that rates will remain low by historical standards for some time.

“No matter what, we emerge from this with lower rates at the end point of the hiking campaign than in past cycles. He’s saying the outlook is clouded with risks and there’s a number of reasons to expect growth to be lower than past cycles.”

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Source: Julian Beltrame, The Canadian Press

Uncategorized Bank of Canada, Economic Growth, Inflation, interest rates

The Bank of Canada took its first steps Tuesday toward returning the country to more normal interest-rate levels by signalling a more hawkish tone on inflation and acknowledging the economy is performing better than expected on “vigorous” consumer demand.

The messages were conveyed in the Bank of Canada’s latest interest-rate statement, which kept its record-low benchmark rate of 0.25 per cent and pledged to keep it there at least until July.

But most bank watchers took note of subtle changes in the statement, compared with previous rate announcements, and there was enough there for them to begin the countdown to rate hikes.

“I suspect (Bank of Canada governor) Mark Carney and company are starting to feel the urge to tighten — not a strong urge now, but an urge nevertheless,” said Michael Gregory, senior economist at BMO Capital Markets.

Among the key changes was a declaration from the bank that the risks to its inflation outlook are “roughly balanced,” and no longer “tilted slightly to the downside” — language that suggests deflation is no longer a concern and that price increases are creeping up to a level that may prompt a response.

The wording change from the Bank of Canada may appear trivial, “but it is nonetheless significant as it reflects an economic backdrop that continues to improve at a much faster pace than what the bank had envisaged,” said Paul-Andre Pinsonnault, senior fixed-income economist at National Bank Financial.

In the statement, the central bank acknowledged economic activity has been “slightly higher” than its own projections, with the five-per-cent gain in the fourth quarter powered by “vigorous domestic demand” and a recovery in exports.

The consensus remains that the central bank will wait until July to begin raising rates. There are two more scheduled rate decisions between now and then — April 20 and June 1.

“What we saw (Tuesday was) one of many steps aiming at moving away from dovish statements to relatively more hawkish ones,” said Sebastien Lavoie, economist with Laurentian Bank Securities.

His firm predicts rate increases will begin in the third quarter, but he said the odds have increased that the first hike will be in July as opposed to September.

Economists are predicting increases of one full percentage point to 1.5 points over the second half of 2010.

Source: Paul Vieira, Canwest News Service

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Mortgages interest rates, Rate Increase

The Bank of Canada is keeping its benchmark lending rate at a record low of 0.25 per cent, reiterating on Tuesday its conditional commitment to hold rates steady until the middle of this year.
Although it held the overnight lending rate steady, the bank acknowledged the recovery appears to be proceeding at a better pace than it had anticipated.
“The level of economic activity in Canada has been slightly higher than the bank had projected in its January Monetary Policy Report,” the bank said in announcing the rate decision.
“Conditional on the current outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.”
It is set to release its next decision on interest rates on April 20.

Source: CBC News
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Mortgages Bank of Canada, interest rates