TD and RBC Increase Fixed Mortgage Rates
TD and RBC were supposed to have their promotional rates available on the 2.99 per cent four year fixed mortgage until the end of this month (February 29th to be exact). But low and behold, just two short weeks after BMO’s campaign ran its course TD and RBC took their promo rate off the table as well. Those rates are history now; in fact they did make history as being the lowest 4 year fixed rate on RateSupermarket.ca.
If you are interested in a 4 year term from one of the Big 6, you are now looking at 3.39% (or more) which is 40 bps higher than the short lived promotional rate.
Ready or Not, A Mortgage Rate Increase is Coming
We knew the super low rates wouldn’t last forever, but are we ready for an increase? If you have been monitoring the Government of Canada’s Bond Yields you shouldn’t be too surprised to hear about the nearing mortgage rate hikes to fixed term products (see below: positive correlation between bond yields and fixed mortgage rates). So far in the month of February, there has been a 19 per cent (24 bps) increase in the 5 year Government of Canada benchmark bond yield and keep in mind that on average, lenders try to maintain a 1-3 per cent spread between the mortgage rates and the bond yields.
Why is the Bond Yield Increasing?
Well, the Greek bailout for starters. The growing optimism on the global economic outlook has caused investors to move towards riskier assets and away from the bond market. The positive trending TSX also motivates investors to take more risk, cooling off the hot bond bull market. Remember, bond prices and bond yields move inversely. Like anything else, bonds prices are determined by supply and demand. If there is not a lot of demand, bidders will pay less than face value which increases the yield.
Recent Economic News from the U.S.
The economic news from the U.S. is surprisingly encouraging! A strengthening labour market has contributed to a drop in the number of claims for unemployment benefits (nearing a four-year low) and there are optimistic signs that their housing market may begin to move in the right direction (January house sales rose to the highest pace in nearly two years). All of these economic indicators point to upward pressure on mortgage rates in the States and although Canada has done a good job at avoiding such a dramatic recession and has experienced a faster recovery when compared to the U.S., we still tend to follow the same trends as our American neighbours.
Final Thoughts – Speak to a Mortgage Broker
If you are in the market for a mortgage now or in the near future, find a friend in a mortgage broker! Brokers have access to a variety of lenders vs. a bank which has one set of rates and products. Why is this so important? It’s important because if the bank’s one lender increases their rates the bank is out of the game whereas a broker can just try another lender. Sure, lenders are competitive just like anyone else and eventually will all follow suit with a price increase. But keep in mind that mortgage professionals usually will get a heads up the day before rates are increasing. If you have a good relationship with your broker and are committed to working with them, they should keep you in the loop and help you get a rate guarantee before pricing increases.
RateSupermarket.ca Week in Review
There is some good news and some bad news. I’ll start with the bad news as I like to end on a good note. There has been upward movement in rates over the last week, namely the four and five year fixed rates and the five year variable rate. The good news? Well a couple of things. Firstly, they are very small increases. The biggest mover is the variable mortgage rate with 25 bps which is nothing close to the 40 bps that the Big 6 had moved their rates by. And secondly, that 2.99 per cent rate that the Big 6 can’t offer is still available through certain brokers across Canada (please ensure that you are searching for the best mortgage rates in your province).
Back by popular demand is the 5 year closed variable rate (46.1 per cent of RateSupermarket.ca visitors searched our 5 year rates over the last week). Fewer than 40 per cent searched the 5 year closed fixed rates as the 2.99 per cent rate left headlines and around 4 per cent of our visitors were looking for a 1-2 year term.