TORONTO – Canada’s largest banks are raising their posted mortgage rates

TORONTO – Canada’s largest banks are raising their posted mortgage rates in a sign the era of ultra-low borrowing could be drawing to a close.

Royal Bank (TSX:RY) and TD Bank (TSX:TD) both announced Monday their posted five-year closed mortgage rates will move up 20 basis points to 5.44 per cent effective Mar. 29, while both raised their special fixed rate offer on a four-year fixed rate by 50 basis points to 3.49 per cent.

A basis point is one-hundredth of a percentage point.

Meanwhile, their posted five-year variable rate — which rises or falls along with the banks’ prime lending rate — will rise 10 basis points to prime plus 0.20 percentage points.

The prime rate, which usually moves with the Bank of Canada’s key interest rate, is currently three per cent.

The moves come after a recent race to the bottom that saw several banks offer special fixed rates as low as 2.99 per cent.

Although variable rates usually follow the lead of the Bank of Canada, longer-term rates are more influenced by bonds. Higher bond yields increase the cost of funds for lenders, who in turn pass them on to customers.

Government of Canada five-year bond yields have jumped more than 50 basis points in the past three months alone.

In a BMO report Friday, its economists argued that with the U.S. recovering gathering steam, central bankers on both sides of the border are becoming more comfortable with the economy and less so with historically low interest rates that in Canada are fanning the flames of the hot housing market.

Both Finance Minister Jim Flaherty and Bank of Governor Mark Carney have recently flagged household debt at a danger to the economy.

Household debt to disposable annual income is above 150 per cent.

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Flaherty criticizes banks’ desire for government mortgage changes

OTTAWA — Finance Minister Jim Flaherty saw irony Thursday in major banks seeking changes to mortgage rules from government, given the control the banks themselves have over the industry.

Flaherty said, however, the possibility of tightening the insured mortgage market — which has been done three times under the current Conservative government — is there. Those decisions, however, result from constant evaluation of the markets.

“I find it a bit odd that some of the bank executives are taking the position that the minister of finance or the government somehow should tell them how to run their business,” Flaherty said during an appearance in Stittsville, Ont., just west of Ottawa.

“We have bank executives in Canada going and saying ‘really, the rules on insured mortgages should be tightened up.’ They must forget that they are actually the ones that issue the mortgages. It’s their market. It’s not my market. They decide what they want to charge in interest rates.

“They’re the ones that make the profits out of this business, so I do find it a bit much when some of the bank executives turn to the government … and say ‘you ought to change the rules and make it tighter.’ It’s very interesting commentary from them.”

Ideally, the finance minister said, the mortgage market will be able to work out its own issues, for which he said he’s already seen positive signs.

“There’s a balance there. The new-housing market produces a lot of jobs in Canada, so there’s a balance that needs to be addressed,” he said. “I’d like the market to correct itself if it can. We’re seeing some evidence of that in the condo market, particularly in Toronto, where there is some softening of the market and that’s a good thing.”

Canada’s household debt-to-income ratio hit a record high of 151.9% last year, largely the result of mortgage borrowing. The ratio dipped slightly in the fourth quarter but at 150.6% was not far off the record.

Since 2008, Mr. Flaherty has lowered the maximum amortization period for new mortgages to 30 years from 40 years, raised minimum down payments required to qualify for government insurance, and required all borrowers to qualify for a five-year fixed-rate mortgage to get insurance.

“We will have modest savings-reductions in order to stay on track to a balanced budget in the medium term,” Flaherty said. “More importantly — and this really is the focus of the budget — if you concentrate on the savings, you’re going to miss most of what the budget is about. (It’s) about long-term sustainability for jobs, growth and prosperity, looking at retirement income, making sure our social programs are sustainable in the long-term for Canada.

“We’re coming back down in our deficits — you’ll see the numbers next Thursday. We’ve done very well this year, we’ll do better next year. We keep reducing the deficit and we’ll get to balance in the medium term.”

Flaherty also defended the government’s Economic Action Plan by referring to a number of infrastructure projects across the country, as well as numerous tax credits, including child fitness credits and those linked to volunteer firefighters.

He said that initiative has help keep unemployment down across the country as well, saying that despite the economic downturn, Canada’s unemployment “never went into double digits.”

Flaherty was particularly critical about provincial spending in Ontario and said change is needed in that province to put it in a better fiscal situation.

“What we’ve basically seen in Ontario is eight, almost nine years of spending mismanagement,” he said. “They need to focus in Ontario, and for the good of the country … on the spending side of the ledger and get things under control. What we’ve seen so far from Ontario — and this is disappointing, but not surprising — is this ‘we’re in a lot of trouble … so we’re going to blame Alberta and other Canadian provinces.’

“Next week I suspect they’ll blame … the federal government, despite the fact our transfers to Ontario are up 77 per cent since we took government in 2006. This year, we’ll transfer $19.2 billion to the government of Ontario, so I forewarn you about that, that we’ll see this ‘blame everyone else, and don’t look in the mirror’ (attitude).”

With files from Reuters

Re/Max expects ‘heated’ sales this spring

MISSISSAUGA, Ont. — Major Canadian housing markets have continued to show “exceptional resiliency” so far this year, setting the stage for a busy spring, according to a major Canadian real estate organization.

In its market trends reports, Re/Max said its survey has found that 12 of 15 Canadian centres, or 80 per cent, reported sales activity in January and February that was ahead of last year’s levels.

More than half of the cities reported double-digit increases, “with the strong demand and diminished supply setting the stage for a heated spring 2012.”

Re/Max said low interest rates, coupled with strong consumer confidence levels and a mild winter played a significant role in the upswing, ushering in an early start to the spring market.

The Re/Max finding of strong early-year sales was in line with those released a week ago by the Canadian Real Estate Association, which also reported an unexpectedly strong market in February.

CREA said actual home sales over its Multiple Listing Service increased 8.6 per cent overall to 36,937 in February compared with February 2010, defying even its own earlier predictions of a cooling market.

Industry watchers who are closely monitoring home prices have suggested Canada’s real estate market, which has been fueled by low mortgage rates since the recession, will soon cool off, but many predict a so-called “soft landing.”

With winter housing sales up, fears of meltdown in spring demand…

Garry Marr Mar 15, 2012 – 7:05 PM ET


Melting snow across Canada may have helped heat up the housing market but the new worry is whether there will be any demand left for homes this spring.

Home sales across the country rose 1.4% from January to February on a seasonally adjusted basis while actual sales climbed 8.6% from a year ago, the Canadian Real Estate Association says. In the first two months of the year, 61,772 homes changed hands, a 6.7% increase from a year earlier.

CREA said in particular there has been a jump in demand for low-rise homes, which has put pressure on prices.

“There has been a preference in recent months, in Toronto and other markets, for single-family homes which are typically more expensive. This trend held in February, putting upward pressure on the national average sale price,” the real estate group said.

That demand has helped to keep home values from falling, with the average sale price of a home in February $372,763, a 2% increase from a year earlier.

The strength of the winter market has Don Lawby, chief of Century 21 Canada Ltd., wondering whether we have stolen some of the traditional spring market frenzy.

“Many parts of Canada had no winter. The question is has the market we have been experiencing taken business from the spring market,” Mr. Lawby said as he toured Montreal. “I can look at property and I don’t have to wait for the snow to melt to see what that property looks like. I’ve seen it.”

It doesn’t hurt that interest rates remain at record lows, with the major banks engaging in another round of cuts that have taken the five-year fixed-rate mortgage down to 2.99%, the lowest rate in history, which was already breached once before this year in January.

Ottawa-based CREA, which represents about 100 boards across the country, said about half of local markets recorded an increase in activity, led by major markets in Calgary, Toronto and Montreal.

Toronto and Montreal.

Consumers have jumped on the change in market conditions with new listings climbing. CREA said that on a seasonally adjusted basis, ne listings were up 1.9% in February from a month ago.

Gerald Soloway, chief executive of Home Capital Group Inc., said the weather was already boosting the housing numbers.


“Canadians historically don’t like to buy houses in three feet of snow. This year with a little less snow, some of the numbers are up,” he said. “That’s been my experience. People get out and look. They might buy a month later, but they get out now and get around looking at new houses and subdivisions because their car doesn’t get stuck. In southern Ontario and the urban areas, there has been very little snow.”

For its part, CREA said the latest numbers are proof the market is on solid footing. “The national rise in both sales activity and the number of newly listed homes beyond the normal seasonal increase provides clear evidence that Canadians are confident in housing market prospects,” said Gary Morse, president of CREA.

Benjamin Tal, deputy chief economist at CIBC World Markets, says you can seasonally adjust statistics but you can’t necessarily take into account the extreme conditions we’ve had this year.

“It’s only adjusted for normal weather, it accounts for winter, but you cannot capture what has happened [this year],” Mr. Tal said. “Some of the activity we are seeing is weather-related.”

As for the idea that we have stolen some of the spring market activity, Mr. Tal contends there is truth to the theory. “I would say yes, absolutely. It’s an early spring, it started already,” he says.

So what will be left over when the spring begins for real? “I don’t think it will be strongest spring ever. I think we will see some [buyer] fatigue,” Mr. Tal said.

It Can Pay To Break Your Mortgage Early!

With mortgage rates still at historic lows, many people have and are considering breaking their current mortgage and renewing now before rates rise any further.

Perhaps you want to free up cash for things such as consolidation, child’s education, vacation or home renovations Or maybe just get a lower rate and pay your mortgage off faster.

In some cases, the penalty can be quite substantial if you aren’t very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term.  Most times it does.

Early payout penalties can either be 3 months interest or IRD which is the difference between the interest rate on your mortgage contract and today’s rate, which is the rate at which the lender can re-lend the money.  With lower rates the IRD tends to be greater than three months’ interest.  Why?  Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead.

Keep in mind penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your initial down payment and whether you opted for a “cash back” mortgage can influence penalties.

While breaking a mortgage and paying penalties based on the IRD may sometimes result in a break-even proposition in the short term, if you look at the big picture, you’ll see that the true savings are long term – as we know that rates will be higher in the near years to come.  Your current goal is to secure a long-term rate commitment before it’s too late, and there lies the significant future savings.