2022-3-20The Big Banks Hike Mortgage Rates...Again
Most big mortgage lenders, including all of the Big 6 banks, have hiked fixed rates once again over the past several days.
In many cases, they've also reduced their variable-rate discounts, making variable-rate mortgages slightly pricier for new borrowers.
Most of the fixed-rate increases were in the range of 15 to 20 bps, although Scotiabank hikes its eHOME rates by 35 bps.
Other national mortgage lenders that have just raised rates include First National, Equitable Bank, Investors Group, Simplii, Merix, Manulife, HSBC and Tangerine.
According to data compiled by rate analyst Rob McLister, the average lowest nationally available 5-year fixed discounted rate rose to 3.07% from 2.82% following this latest round of rate hikes.
That translates into about $68 more in monthly payments for new fixed-rate mortgage borrowers, or $6,209 more in interest over the five-year term. That's based on an average mortgage size of $526,491 among those who purchased within the past two years, according to recent data from Mortgage Professionals Canada.
Some lenders have also been quietly lowering their variable-rate discounts from prime rate, resulting in higher rates. All of the big banks are now offering special-offer 5-year variable rates of 2.05% (prime - 0.65%), up from 1.95% last week.
What's causing this new round of rate hikes? Government of Canada bond yields, which lead fixed mortgage rates, initially plunged at the outset of Russia's attack on Ukraine, but rebounded last week to a three-year high.
"At the same time, risk premiums are being added to institutional borrowing rates," Dave Larock, a mortgage broker with Integrated Mortgage Planners, noted in a recent blog post. "That has raised lender funding costs and, consequentially, our mortgage rates."
At the same time, calls are also growing louder from some analysts for the Bank of Canada to take more aggressive action at its upcoming rate meeting in April to bring inflation under control.
In February, headline inflation came in at a 30-year high of 5.7%, while seasonally adjusted inflation came in at an annualized rate of 6.8%.
"The hottest inflation in over three decades is being driven by widespread pressures," wrote Scotiabank economist Derek Holt. "The BoC needs to show it is serious about inflation risk and adhering to its mandate with a larger move than just 25bps in April, [more] like 50–75bps."
Scotiabank has so far been the most aggressive with its forecasts, and expects the Bank of Canada to deliver 200 basis points worth of tightening this year alone, which would bring the overnight target rate to 2.50%, up from its current 0.50%.
"...if we continue to get upward momentum as we forecast and if StatCan adds used vehicle prices to the basket...then perhaps by summer Canadians will be fretting over an annual inflation rate crossing 8% year-over-year," Holt added. "That would be inflation at a rate Canadians have not seen since 1982 into early 1983."
The bond market, meanwhile, is pricing in a 100% chance of a 25-bps hike at the Bank of Canada's next meeting on April 13, and is fully priced in for 150-bps worth of tightening through the end of 2022.
The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.
|5-Year BoC Bond Yield:|
|5-Year BoC Bond Yield:|
|BMO||1.50%||2.00%||NA||1.85% (-10 bps)||2.25%|
|Scotia||2.50% (+50 bps)||3.00% (+50 bps)||NA||3.00% (+50 bps)||3.10% (+50 bps)|