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Toronto Loft Conversions

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Unique Toronto Homes

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Condos in Toronto

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Toronto Real Estate

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Big banks hike residential mortgage rates

Madhavi Acharya-Tom Yew – Yourhome.ca

Three big Canadian banks increased interest rates on residential mortgages Monday, moves that are likely to become more common as worries over international debt push up prices in the bond market.

Royal Bank of Canada, TD Canada Trust and Laurentian Bank hiked rates on closed mortgages with terms of three, four and five years.

The increases ranged from two-tenths to six-tenths of a percentage point. The biggest rate hike was on five-year mortgages.

All three banks increased their posted rate by 0.6% to 5.85% from 5.25%.

That means a homeowner with a $250,000 mortgage at the new rate of 5.85% with a 25-year amortization would pay $1,577 per month. That’s up $88 from $1,489 a month, prior to the hike, which is to take effect Tuesday.

The increase does not stem directly from moves by the Bank of Canada, but rather anticipated central bank rate hikes, economists said.

The bond market is moving on speculation the Bank of Canada will raise rates sooner than expected to put the brakes on inflation.

“Bond yields have risen over the last several weeks so it’s not surprising that mortgage rates are tracking them,” said Eric Lascelles, chief economics and rates strategist at TD Economics.

“Markets are anticipating that the Bank of Canada will make a move ahead of its current pledge date,” said Sal Guatieri, senior economist at BMO Capital Markets.

Prices in the bond market are moving down as investors expect interest rates to increase in the coming months, he said. In the background are concerns about sovereign debt, Guatieri added.

While an agreement reached last week to provide an aid package to Greece appeared to improve investor sentiment, there is still considerable anxiety about the country’s long-term ability to finance itself.

In the U.S., anxiety over rising interest rates is matched with concern about the massive government deficit, Lascelles said.

That has bond market investors demanding higher interest rates.

“Given the almost unanimous view that central banks will begin increasing interest rates in the next three to 12 months depending on what country you’re talking about, it’s not a surprise that the banks are anticipating this and responding to their own cost pressures,” Lascelles said.

“Keep in mind, banks are borrowing in the market themselves to fund those mortgages.”

The Bank of Canada made a pledge last year to keep its key overnight rate at a historic low of 0.25% until the beginning of the third quarter to help stimulate the economy.

Over that time, observers have been surprised by the strength of the domestic Canadian economy.

In recent months, inflation has spiked higher and the central bank has signalled to markets inflation-fighting remains its top priority.

In a speech last week, Bank of Canada Governor Mark Carney said his pledge to keep the bank’s benchmark rate on hold until July is “expressly conditional” on inflation, which he acknowledged has been “slightly” stronger than anticipated.

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Contact the Jeffrey Team for more information  –  416-388-1960

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