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February 14, 2012

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“Price War” Prompts TD and RBC to Up Rates

by Editor

Canadian mortgage rates are on the rise again, reportedly thanks to “price-cutting” by some of the nation’s top banks. After briefly offering record-low rates of 2.99% on a 4-year fixed mortgage, both RBC and TD have raised rates by 40 basis points. The move comes rather unexpectedly; when the Royal Bank of Canada announced it was dropping their rates on January 13, the bank stated that they intended to keep the rates locked in the market until February 29.

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War of the Lowest Rates

Both RBC and TD dropped their rates back in January in response to a drastic drop from the Bank of Montreal on a five-year, 2.99% 25 year amortization special mortgage. These sudden rate drops were designed to help drum up business in what was beginning to look like a slow month. But that wasn’t the only motive. BMO’s dropped rates also forced other banks to price-match on a variety of similar offerings. Competition for mortgage dollars is fierce in Canada, so it was no surprise when both RBC and TD decided to follow suit with similar products.

Ottawa’s Unhappy With Price Wars

The rate roller coaster certainly hasn’t gone unnoticed in Ottawa, as Finance Minister Jim Flaherty continues to voice his concern over the amount of debt Canadians are carrying. Sources recently told the Globe and Mail that officials in Ottawa “were unhappy with the price war that developed on mortgage rates in January,” and that many feared low rates would further encourage Canadians to take on more debt. Senior Deputy Governor Tiff Macklem was also recently quoted by the National Post voicing his concerns for rising debt: “We have expressed on numerous occasions our concerns about rising household indebtedness. The simple fact is that consumers are consuming more than they’re earning.”

So, the question on every economist’s mind is whether or not the rate hike was in response to Ottawa’s unease. According to RBC spokesman, Matt Gierasimczuk, there’s no correlation. Gierasimczuk attributed last week’s rate increase to “long-term funding costs” that are rooted in global economic concerns. He went on to say that RBC had held off passing on these rates to the customer, but found that it was now necessary to increase rates.

But is that really the reason? Sources say there’s nothing to suggest RBC’s 4-year fixed funding rose due to increased costs. In fact, the bank maintains one of the nation’s lowest cost of capital. Sounds a bit fishy.

Other Rate Changes

Aside from the 4-year fixed hike, RBC also upped their 5-year “special offer” rate by 10 base points to 4.04%. Their current 5-year fixed rate also rose by 10 base points to 5.24%.

Which Rates Make Sense For Borrowers?

If you’re currently looking to cement a great mortgage rate, now’s the time to contact your mortgage broker. Most other major banks are expected to match some or all of RBC’s increases, so don’t wait – rates could start rising across the board shortly. With that being said, some lenders and brokers may still continue to offer a 4-year fixed term at 2.99% (or less), so keep your eyes and ears open. Several lenders are also offering a 5-year fixed mortgage for somewhere in the range of 3.09% and 3.19%, which is quite reasonable considering you’ll enjoy an extra year of rate protection.

For personal advice and professional products, contact the professionals at FamilyLending.ca. Their brokers are currently offer in a 5-year closed at 3.09% and a 10 year closed at just 3.99%. Lock your rate in now by completing their online mortgage pre-approval application.

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