First it was the new “mortgage stress test” and now it’s increased mortgage rates. Several banks increased their mortgage rates this past Friday, with the rest expected to follow suit.
RBC, TD Bank and CIBC increased their mortgage lending rates with Scotiabank following shortly thereafter.
RBC, TD and Scotiabank increased their 5 year fixed mortgage rates to 5.14% with TD noting this is the first time rates have breached 5% since 2014. CIBC increased their rate to 4.99%.
Gregory Klump, Chief Economist for the Canadian Real Estate Association says “If enough banks raise their rates by the same amount, it will raise the benchmark rate for stress tests.” He added “That would definitely have a marginal impact on how much mortgage people can qualify.”
What does all of this mean for home buyers? Right now it means higher interest rates for mortgages, but no change to the “stress test,” yet.
Uninsured mortgages (those with 20% down or more) must prove they can make payments of greater than 2 points higher than their contracted mortgage rate OR the benchmark rate published by the Bank of Canada.
Insured mortgages (those with 5-19.99% down) must pass the stress test and qualify at the benchmark rate.
Currently the Bank of Canada benchmark rate is 4.99%.
Economist are predicting that the Bank of Canada will increase their key interest rate by 0.25% to 1.25% causing banks to increase their prime lending rates. This will push variable mortgage rates and other loans such as home equity lines of credit up. Additional, economist expect gradual pace of tightening interest rates over the next two years, of about 25 bps every six months.
For more information about today’s mortgage rules and rates contact your mortgage specialist. We will continue to monitor and keep you posted on any rate increases or changes to the “stress test” benchmark rate.