The rise in fixed mortgages rates continues, with mortgage lenders implementing a new round of increases within the past week.
This includes the majority of the six largest banks, which boosted rates a week ago. Here are some of the most recent rate increases to the special-offer rates of the major banks, averaging 20 to 30 basis points:
- BMO: Insured 5yr fixed (3.49% to 3.69%); Uninsured 5yr fixed (3.49% to 3.79%)
- TD: 3yr fixed (3.29% to 3.49%); insured 5yr fixed (3.49% to 3.69%); uninsured 5yr fixed (3.59% to 3.79%)
- RBC: 3yr fixed (3.19% to 3.39%); 5yr fixed (3.49% to 3.69%); 5yr variable (2.05% to 2.20%)
- CIBC: insured 5yr fixed (3.42% to 3.72%); uninsured 5yr fixed (3.59% to 3.89%)
- National Bank of Canada: 5yr fixed (3.54% to 3.79%)
Numerous additional banks, non-bank mortgage lenders, and credit unions also increased their rates. The latest surge comes after the yield on Canada’s 5-year government bonds, which is a leading indicator for 5-year fixed rates, reached a nearly 11-year high of 2.49 percent on Friday.
Rob McLister, a rate expert, observed that rates have increased by more than 100 basis points in just 15 days.
In his weekly Mortgage Logic briefing, he stated, “After examining 22 years of daily bond data, I am unable to identify another Treasuries movement in the same timeframe that was this large.” This has increased average 5-year fixed interest rates by around 48 basis points [during the same time frame].
In the near future, fixed rates will exceed 4 percent.
According to a growing number of mortgage industry experts, if current economic and geopolitical situations hold, it is expected that 5-year fixed mortgage rates will reach 4% in the coming weeks.
“Five-year fixed-rate mortgages with 30-year amortizations were available at approximately 2.50 percent in January and are now available at about 1 percent higher rates,” mortgage broker Dave Larock of Integrated Mortgage Planners noted in his most recent blog post. If they keep going up at the rate they are now, 5-year fixed interest rates could easily hit 4% by Easter.
Ron Butler of Butler Mortgage anticipates that 5-year interest rates will stabilize at a low 4-percent level.
The recent rate rises, he said, have already slowed down mortgage activity, which isn’t good.
“Typically, when there is a lot of volatility, people who have pre-approval try to act quickly, while people who don’t have pre-approval just stand still,” he said on CMT.
Currently, only new homeowners are affected by rising rates, as individuals with upcoming mortgage renewals still have rate offers on the table that were obtained prior to the most recent rate increases. However, this will soon change, says Butler.
“Those who are renewing are still receiving rates from six weeks ago, so they are pleased,” he said. “Request an update on the situation in six weeks.”
Butler said that the current pattern is “very unpredictable, with very little stability.” Larock acknowledged the trend, stating that more clients are opting for flexible prices currently.
The average rate for a 5-year fixed mortgage was around 2.75 percent five years ago, implying that borrowers who have completed their terms may soon face renewal rates that are at least 1 percentage point (or 100 basis points) higher.
For every 10 basis point increase in rates, the monthly payment for 5-year mortgages increases by around $5 per $100,000 of debt.
Variable rates are also on the rise.
Because of the approximately 1.50 percent margin below equivalent uninsured fixed rates, variable rates remain a popular choice for today’s borrowers. However, with more Bank of Canada rate hikes forecast this year, that spread is expected to narrow—or even disappear entirely.
The next rate decision by the central bank is scheduled for April 13, and OIS markets are currently predicting that the central bank will raise the rate by 25 points. However, a 50-basis-point rise is not out of the question.
There doesn’t seem to be a simple answer for people who are having a hard time deciding between a fixed or a variable budget. Both options have their own risks.
“With the yield curve indicating increased recession risk, the prime rate is likely to fall back to its 10-year norm within 36 to 48 months,” McLister said. “As a result, borrowers who lock in fixed rates in the mid-to-upper 3% range must weigh unexpected inflation/rate risk against the danger of a recession.”
That sentiment was mirrored by Larock.
“Five-year fixed-rate borrowers must take the risk of locking in a rate that has been temporarily increased by rises in both bond rates and risk premiums,” he said.
He went on to say that the risk of a variable-rate mortgage is that there is “technically no limit” to how high variable rates can go, especially now that the Bank of Canada has stated that it will “do whatever it takes” to get inflation back on track.
“At a time when bond yields appear to be pricing in worst-case scenarios and the mainstream media is advising borrowers to lock in at any rate they can get,” Larock wrote, “now seems like a good time to remind my readers that the fixed/variable decision comes with risk, regardless of which choice is made.”
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Bottom Line: The majority of the six largest Canadian banks have increased their mortgage rates by at least 20 basis points. The latest surge comes after the yield on Canada’s 5-year government bonds reached a nearly 11-year high last week, according to the Bank of Canada. Five-year fixed-rate mortgages with 30-year amortizations were available at 2.50 percent in January and are now at about 1 percent higher rates. Ron Butler of Butler Mortgage anticipates that 5-year interest rates will stabilize at a low 4-percent level. The Bank of Canada is expected to raise its benchmark interest rate by 25 basis points this month, but a 50-basis-point rise is not out of the question, according to Ian McLister, chief economist at BMO Nesbitt Burns and Larock.