TORONTO: Royal Bank (TSX:RY) is hiking mortgage rates amid a combination of higher bond yields and recent federal mortgage rule changes that have made it pricier for banks to get access to cash.
RBC said Tuesday it’s raising its special offer for a five-year fixed rate mortgage to 2.94 per cent, an increase of 30 basis points.
The lender also said it’s raising its special offer for a four-year fixed rate mortgage to 2.79 per cent and three-year fixed rate mortgage to 2.69 per cent, increases of 30 and 25 basis points, respectively. The changes, which impact amortizations under 25 years, take effect Thursday.
Robert McLister, a mortgage planner at IntelliMortgage and the founder of RateSpy.com, said Donald Trump’s surprise election victory has caused a sell-off in the bond market, as investors anticipate that his promised tax cuts and infrastructure spending will result in higher inflation. The sell-off has pushed bond yields, which move inversely from bond prices, higher.
“Mr. Trump has made it more expensive for North Americans to get mortgages,” McLister said. “Fixed mortgage rates and bond yields tend to move hand-in-hand.” Mortgage rule changes introduced by Ottawa last month are also likely a factor, although to a lesser extent, McLister said.
The federal government introduced an array of new regulations governing insured mortgages, including expanded stress test requirements and restrictions on when it will provide insurance for mortgages with larger down payments.
Some mortgage brokers have warned that the new rules will make it harder for non-bank lenders to operate and could see Canadians pay higher interest rates.”We’re seeing government rule changes behind the scenes that are making it more expensive to lend,” McLister said.
Additional mortgage rate changes being introduced by RBC Thursday will also impact homebuyers who opt for an amortization period longer than 25 years. They will now have to pay higher rates than those with shorter amortization periods.
The special offer rates for three-, four- and five-year fixed rate mortgages are 10 basis points higher than for those with an amortization of 25 years or less. RBC said it takes a number of factors into account when making changes to mortgage rates, including funding costs and market conditions.
“This includes looking at the bond market, swaps and liquidity in the market, to name a few,” Mary Ellen Brown, RBC’s senior vice-president of home equity financing, said in a statement. “Based on current conditions, our rates reflect the right balance between our clients’ expectations and our costs of funding mortgages.”
The increase by RBC follows a move by TD Bank (TSX:TD) earlier this month to raise the interest rate it charges customers with variable-rate mortgages.
