In an attempt to cool the housing market, the mortgage industry has seen a series of changes, and the latest would be Royal Bank of Canada's plan to increase rates on several of its mortgages, The Globe and Mail reports.
According to the bank, they have planned to stretch the rates on fixed mortgage rates of between two and five years beginning Friday, and the increase would be by 10 basis points. RBC will also increase its five-year variable rate by 15 basis points.
This move by RBC is a reflection of their discount rate offered to qualified clients, which also brings its five-year fixed rate 3.04 per cent higher. So far, there are no announcements from other Canadian banks of a matching rate, given that lenders keep a pulse on each other in changing mortgage rates.
"RBC's move comes amid sweeping changes by federal regulators last month to curb soaring home prices in cities such as Toronto and Vancouver, including hikes to minimum down payment rules, higher costs to lenders who securitize and sell their federally insured mortgages and a proposal by the Office of the Superintendent of Financial Institutions to require banks to hold more capital against some mortgages," writes Tamsin McMahon for The Globe and Mail.
The rate increases were not intended as a response to the recent changes by the fed, says Sean Arnato-Gauci, senior vice president for RBC's home equity financing in an e-mailed statement. Instead, he says that the moves "reflect a number of factors (beyond the bond yield), including changes in market conditions driving increased short-term funding costs and long term/wholesale funding costs."
Competition has been intense for deposits and mortgage lenders have increased funding costs with investors asking greater risk premiums for bank debt.
Mortgage planner Robert McLister believes that banks are already feeling the pressure from the recent regulatory changes though they are yet to take effect. "To a certain extent lenders are pricing that in, in advance," he said. "These are real behind-the-scenes factors that are inflating lenders' funding costs."
