Well, we’ve been saying it for months: record low fixed mortgage rates couldn’t stick around forever! Royal Bank of Canada has announced a fixed rate increase for both special offers and regular posted rates, effective June 10.
The changes see the popular five-year fixed option increase by 20 basis points to 3.29 per cent. It’s a 61-point spread between the current very lowest five-year fixed rate offered on the market of 2.68 per cent, offered in British Columbia by True North Mortgage.
Here’s how the following term rates will increase:
- one-year fixed closed: 3.14 per cent (0.14)
- two-year fixed closed: 3.14 per cent (0.10)
- three-year fixed closed: 3.65 per cent (0.10)
- four-year fixed closed: 3.09 per cent (0.10)
Bond Yields A Factor In Increase
Fixed mortgage rate levels correspond directly to the level of investor interest in government of Canada bonds. When bond yields – the interest earned on the bonds – are low, it’s an indicator that investor interest is strong, and that Canada’s economy is viewed as a solid investment with less chance of loss. To add perspective, bond yields for many European countries are quite high, as investors shy away from their shaky economies.
High investor interest presents Canadian banks with stability, and liquid funds at a lower cost. These savings are passed down to borrowers, resulting in a lower cost of borrowing. Low investor interest causes credit among banks to seize up, and rates are hiked to cover the increased cost of borrowing.
How Economic Conditions Affect Mortgage Rates At Home
Government of Canada bond yields have experienced a surge as of late, as some of Canada’s largest trade partners show only sluggish recovery. While the Canadian economy may present stable progress and a “safe haven” mindset for investors, our largest trading partners – the U.S. and Europe – do not.
As exports are a key contributor to Canada’s economic engine, affiliation to such volatile economies are viewed as risk by investors. Recent reports of slow U.S. growth, combined with the increasingly unstable conditions in Europe, are all factors behind the hike.