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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