Canadian banks raise short-term mortgage rates – to be more specific
source: Bank Of Canada : http://www.bankofcanada.ca/en/rates/interest-look.html
|Target for the overnight rate|
|Prime business (‘prime rate’)|
|Conventional mortgage – 1-year|
|Conventional mortgage – 3-year|
|Conventional mortgage – 5-year|
|Prime business (‘prime rate’)|
*Mortgage Brokers Rate may vary,ask,,,,
Mortgage rates are on the rise – but how much of a crimp will it put in the Canadian housing market?
So far, not much. The 25-basis point rise announced by the Bank of Canada Tuesday amounts to “a movie and some popcorn” said Lois Volk, a mortgage broker with INVIS Canada.
“It’s going to take much bigger numbers to scare people away from buying a house,” said Volk.
Jim Wong, a mortgage broker with RBC, said some of his customers were bracing for a bigger jump.
“Nobody’s been panicking because they’ve been expecting this for so long, they’ve been prepped,” said Wong.
The 25-basis point increase amounts to an additional $12.07 every month on a $100,000 mortgage, he said.
“If that’s a deciding factor for you in buying a house, maybe you shouldn’t be buying a house.”
The widely expected rate hike from an emergency low of 0.25 per cent to 0.50 per cent is the first since mid 2007. It is also the first tightening move by a G8 country since the financial crisis that started in 2008.
But because it was widely expected, the move was also anti-climatic for many consumers. The bank also stepped back from expectations that it would relentlessly continue to tighten policy in the future.
“While the Bank of Canada has taken the first step to tighten policy, it is an incredibly tentative step,” said Bank of Montreal economist Doug Porter.
Housing analyst Will Dunning said the move by the bank would have little immediate effect on the housing market because rates are still historically low.
“This is largely symbolic so far, heralding a change in conditions,” said Dunning.
Variable short term rates, which used to be as low as 1.75 per cent (after discount), would be the most immediately affected. The Toronto Dominion Bank was the first to announce a rate hike effective Wednesday of 25 basis points. Some long-term fixed rates, which are more influenced by the bond markets, actually went down.
The Bank of Montreal announced it was lowering its five-year rate to 4.25 per cent, effective Wednesday.
“Most consumers are still going for the variable rate because the difference between the two rates is still significant,” said Wong.
Analysts are already forecasting that the housing market is due for a slowdown because of higher rates. The question is how much higher.
Some earlier forecasts had called for rates to be as much as a total of 3 percentage points higher by the end of 2011.
Based on a 2 per cent rate of inflation, a long-term rate could be as high as 5.5 per cent, said Dunning.
“A lot of people would certainly feel it if it gets that high,” said broker Volk, who remembers paying 18 per cent interest when she had her first mortgage in the 1980s.
While it would cost $423.75 based on a 2 per cent mortgage rate for every $100,000 of mortgage, that cost would go up to $610 per month, or $186.25 more based on a 5.5 per cent rate. At that point it’s not about a movie and popcorn – you’re talking about sacrificing the annual vacation, said Volk.
“My guess is that the first-time home buyers would be most affected by any change in rates, since they tend to buy to the limit,” said Phil Soper, CEO of Royal LePage.
Canadians, meanwhile, are more indebted than ever. According to an RBC study, the average amount remaining on Canadian mortgages was $124,131 in 2009, compared with $109,504 in 2005. __________________________________________________________________
Article by Tony Wong, June 1, 2010, BUSINESS REPORTER
(The comments contained on this site are for information purposes only and do not constitute legal advice.)
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