The other Canadian banks moved to increase their fixed mortgage rates this week with CIBC, BMO, Scotibank and Laurentian Bank all following RBC & TD’s lead by raising fixed rates between 0.15% and 0.25%. The average benchmark posted 5 year fixed rate now stands at 6.25%, a 1% increase over a month ago.

These rate increases seem to be moving more quickly than bond yields have been going up (government bond yields influence fixed mortgage rates), and a Globeandmail.com article this week interviewed BMO’s mortgage director who gave a few reasons why this is happening at the moment:

Banks are reacting to their borrowing costs going up – and this can’t be about the banks simply going for profits as it’s a very competitive market and the market wouldn’t let them

Banks are also trying to anticipate future bond yield increases too, as they don’t like moving rates all the time as it causes ‘ dissatisfaction’ and disrupts their sales force

To reduce the risk and rising costs of giving rate guarantees to their customers who lock in rates -in a declining rate environment this risk is minimal, with rates going up, these need to be a much bigger consideration

The article does go on to point out that despite the rate increases over the past month, we are still below the 10 year historical averages for the 5 year fixed rate and 5 year government bond yields.

Rates are still expected to go up from here and we’ll have May’s version of the Mortgage Rate Outlook Panel ready early next week with our top industry experts providing insight’s into where rates are heading and why. So check back here for the update and enjoy your weekends.

Kelvin

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