RBC Royal Bank Hikes Several Mortgage Rates

Royal Bank of Canada will be raising rates on several of its mortgages starting Friday, but the other big banks have not yet indicated if they will follow suit.

RBC, one of Canada’s biggest lenders, says its special offer five-year fixed mortgage goes up one-tenth of a point to 3.04 per cent.

The bank says the changes don’t apply to its posted mortgage rates, which are typically higher than special offer rates.

Several other special offer mortgage rates from RBC will also rise by 0.10 per cent on Friday, but the amount of annual interest charged will depend on whether the term is two, three or four years.

RBC is also raising the rate for a variable five-year mortgage by 0.15 per cent, starting Jan. 8.

Meanwhile, TD Bank spokesperson Alicia Johnston said the bank had “nothing to share at this moment” on any mortgage rate changes. TD last increased rates Dec. 18, with both its one-year closed and four-year closed special up 0.10. It also introduced a new five-year closed special at 2.94.

Scotiabank said it last raised mortgage rates on Dec. 10 in all of its fixed rate products and does not have any further announcements at this time.

CIBC and BMO did not respond to the Star’s requests for comment. The banks often follow such moves, with RBC typically leading the charge.

Analysts note that new mortgage market rules introduced last year by federal regulators means banks are facing higher costs for financing mortgages. And topsy-turvy economic conditions also translate into banks paying higher rates on the money they raise to lend out as mortgages to its customers.

“They could be offsetting those losses ahead of time,” said Penelope Graham, editor ofRateSupermarket.ca.

However, she says “the main motivation for raising rates appears to be padding the bank’s margins, as the economic factors do not support it.”

She explained that five-year bond yields have dropped 0.14 per cent to 0.709 over the past four weeks, as bonds are in high demand due to global stock upheaval. At this time last year, the average five-year bond yield was 0.83, and the best mortgage rates were at 2.69 per cent.

“With yields at 10 basis points lower this year, RBC is hiking rates in the opposite direction,” she noted.

With the Bank of Canada rate at 0.5 per cent, the banks’ prime rates should theoretically be at 2.50 per cent, Graham said.

“When RBC increases their variable rate to 2.90 per cent, it will mean only one-fifth of the prescribed discounts from the BoC last year are in force,” she added.

RBC’s 10-basis point increase to 3.04 per cent for five-year mortgages would cost a buyer about $23 more monthly and $276 annually, based on the average home price of $456,186.