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2180 Steeles Avenue West,
Suite 204, Concord,
ON, L4K 2Z5

Phone:     905-761-7001
Toll Free: 1855-761-7001
Fax:          905-761-7005

Email: mortgageadvisor@rogers.com

12 January 2018

Big banks are raising posted mortgage rates

On Thursday, Royal Bank of Canada decided to raise its posted five-year fixed mortgage rate. TD follows the suit on Friday.

And while such news wouldn’t be so significant earlier, this time it’s a different story.

Today, most Canadians have to undergo the so-called stress-test in order to prove they can withstand much higher rates before they are approved for a mortgage. This change makes RBC's seemingly unimportant increase extremely significant.

As you know, the central bank’s posted five-year fixed rate is used for the majority of mortgage stress tests in Canada, and it hasn’t exceeded 5% in 4 years already.

The increase of RBC's and TD's posted five-year fixed rates by 0.15% may start a new era for the Canadian mortgage qualification rate.

In case more Big Six banks follow the trend, and it’s quite possible, the qualification rate will rise from 4.99% to 5.14% right the next week, making the stress test even stricter.

It should be noted that mortgage borrowers haven't had to qualify at such high rates since 2008, when there were no government stress tests yet.

Bond traders expect the prime rate to go up by 0.25% after January 17, as markets are pricing in a three-in-four possibility of a rate increase by the central bank on that day.

The main thing now is to ignore all the fuss around it and concentrate on risk management

Ask yourself the following: in case a mortgage rate gains 1%-2% by the time you need to renew, can you afford a 5%-20% payment increase?

If you can, then you may find variable rates of prime minus 1.10 per cent. All variants, which are better than prime minus 0.70%, provide you good enough buffer in today's situation.

However, if you’re not sure about it, you may consider a five-year fixed rate, which can still be found at a great rate around 3%.



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