TD Bank joins RBC in hiking fixed mortgage rates

By Special to MoneySense on November 17, 2016
Estimated reading time: 2 minutes

Changes kicked in Tuesday and affect all amortization periods

TORONTO – TD Bank (TSX:TD) has quietly increased its fixed mortgage rates ahead of a similar move by Royal Bank of Canada (TSX:RY) to take effect Thursday, the latest sign that Canada’s big banks are hiking the costs of borrowing for homeowners. Cheryl Ficker, a spokeswoman for TD, said Wednesday that the lender raised its special rate offer for a four-year fixed mortgage by five basis points to 2.44 per cent and for a five-year fixed mortgage by 10 basis points to 2.69 per cent. The changes kicked in Tuesday and affect all amortization periods, Ficker said. Rob McLister, a mortgage broker at IntelliMortgage and founder of RateSpy.com, said he expects the other big banks will quickly move in lockstep because of a massive sell-off in the bond market that has made it more expensive for banks to get access to cash.

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“When bond yields shoot up 25-plus basis points like we’ve seen in the last week, the big banks move like a herd,” said McLister. “Some lift rates within 48 to 72 hours and the stragglers take two to four more days. But the herd always moves in the same direction.” McLister said he expects the other big banks to boost their five-year fixed mortgage rates by 10 to 40 basis points. TD’s decision comes ahead of Royal Bank’s hikes to its special offer for fixed mortgage interest rates. As of Thursday, RBC’s special offers for a four-year fixed rate mortgage will rise by 30 basis points to 2.79 per cent. A five-year fixed mortgage rate will be 2.94 per cent, an increase of 30 basis points. The bank’s changes are based on amortization periods of 25 years or less.

Expect more fixed rate mortgage loan increases

RBC homebuyers who opt for an amortization period longer than 25 years will have to pay higher rates than those with shorter amortization periods. The special offer rates for four- and five-year fixed rate mortgages are 10 basis points higher than for those with an amortization of 25 years or less. McLister said the wide gap in the banks’ new rates indicates that RBC is intentionally overpricing its competitors. “I suspect RBC, acting as market leader, is displaying these extreme rates to create a perception that rates should be higher than they are,” he said. “It also generates more revenue when RBC’s variable-rate customers lock in.”