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Five-year, fixed-rate mortgages have inched up between 10 and 15 basis points since the summer, Penelope Graham, editor at RateSupermarket.ca said in an interview. A basis point is 1/100th of a percentage point, so a 10-point hike is the equivalent of a mortgage rate going from 2.55 per cent to 2.65.
That would move the payment on a 25-year mortgage for $ 400,000 from $ 1,800 a month to $ 1,820 — not a large number in absolute terms but a psychological shock to mortgage holders who had perhaps gotten used to cheaper and cheaper borrowing for the last half-decade.
Fixed-rate mortgages, especially five-year ones, make up the lion’s share of Canada’s mortgage market, and their rates are intrinsically tied to activity in the bond market, because borrowing there is where banks generally come up with the money to loan to mortgage applicants who want to buy a home.
The cost of borrowing is going up everywhere. A five-year Government of Canada bond was paying out 0.6 per cent as recently as August. Today it’s up by more than half, to 0.92 per cent — still low, but a factor in the quiet upward creep of mortgage rates.
Variable rate mortgages are closely tied to the central bank’s rates, but the larger pool of fixed-rate mortgages are priced based on what’s happening in the bond market because that’s where banks finance their loans.
Banks make money on the spread between what they have to pay out on bonds they sell, and what they can get in return for loaning that money to home buyers. That spread has been thinning as the bond market reacts to a widely held belief that the U.S. central bank is getting ready to hike its benchmark interest rate for the first time in almost a decade.
When asked for comment, none of the five big Canadian banks provided details as to whether or not they had hiked their five-year rate recently, but a spokesperson with TD Bank said “we review our rates on an ongoing basis so that that we’re providing competitive options to meet the needs of our customers.”
Customers can often negotiate a better deal with the bank than their posted rate offers, but according to RateSupermarket.ca, here’s the posted five-year mortgage rate at each of Canada’s biggest banks:
Graham adds that barring something drastic in the bond market, she doubts any type of mortgage rate will skyrocket any time soon, as policymakers and the lenders themselves will be eager to mitigate the shock as rates return to a more normal level.
“Nobody has a crystal ball but if the economy improves, higher rates will accompany that some time in the future,” she said.
“It’s important to be savvy [now] you’ve got options,” she said.