Banks hike mortgage rates

Hey there, time traveller!
This article was published 30/03/2010 (5870 days ago), so information in it may no longer be current.

Toronto — Rising mortgage rates announced Monday signal the end of historically low home borrowing costs and present Canadian consumers with a dilemma: either stay flexible, hope for the best and ride out the next several months or lock in to long-term loans.

Three big banks raised their mortgage rates by more than half a point, effective today, and most industry watchers expect that’s just the beginning of future small jumps that will hike the cost of home ownership the rest of this year.

Winnipeg real estate industry officials said they expect to see a flurry of activity over the next few weeks as some homeowners and homebuyers scramble to lock in their mortgage rates before they go any higher.

“That’s typically the pattern,” said Karen Beckingham, a mortgage associate with the local Mortgage Intelligence office. “In fact, I just got a couple of emails saying, ‘Should I lock in now?’ “

It’s also going to add more fuel to what’s already shaping up to be a hot spring resale-home-buying market, said Peter Squire, residential market analyst for WinnipegREALTORS.

“It’s going to get those fence-sitters going,” Squire said. “Spring is already upon us (weather-wise), and this is going to be one more motivating factor for them to get going.”

Beckingham and Daryl Harris, an accredited mortgage specialist with One Link Mortgage & Financial, said Monday’s increases undoubtedly caught some people by surprise because they thought they had until June or July before the Bank of Canada starts raising interest rates. But they’ve been warning their clients for weeks mortgage rates could go up before then if the cost of borrowing money on the bond markets, where most banks go for their mortgage money, goes up. And that’s exactly what happened.

They said most of their clients who were planning to buy a home this spring have already had their mortgages pre-approved and the rates locked in for 120 days. So they’ll be OK if they find a home before then. It’s the ones who haven’t got their mortgages pre-approved yet who will now be scrambling to get that done. But they’re going to have to pay the new, higher rates.

For homeowners or homebuyers who are nervous about Monday’s rate increases, the security of five-year, or longer, fixed loans may be the best option, says another mortgage expert.

“If that (rising rates) causes you discomfort then perhaps a fixed rate’s where you want to be,” said Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.

“If you’re closing in the next six months, I suggest people do that quickly.”

The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX:RY), Laurentian Bank (TSX:LB), and TD Canada Trust (TSX:TD). Rates for mid-term mortgages like these tend to reflect the banks’ borrowing costs on bond markets, where mortgage loans are financed.

Other banks are expected to follow suit.

The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

That means a homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 a month. Prior to Tuesday’s hike, that mortgage would have cost $1,489 a month, or $88 less.

Many people with decent credit history who are applying for mortgages can negotiate better than posted rates.

The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.

The latest increases reflect real-time market interest rates, which usually signal future central bank rate jumps months in advance.

— The Canadian Press / staff