In a post I made last month I made reference to an attractive 5 year fixed term mortgage
that I received from a peer of mine at TD Canada Trust with an interest rate of 3.64%.
That post generated a number of emails from readers and friends wondering what rate they could potentially receive on a 5 year fixed term mortgage and the merits of choosing a fixed over the historically better variable rate mortgage.
As I answered a recent email from a friend I took notice of the posted rates on TD’s website for a 5 year fixed term; currently at 4.55%. That’s a stark difference between their posted rate of 3.95% when I was shopping for a mortgage near the middle of May and works out to an increase of 0.60% or (60 basis points) over a period of only three months.
What made it more interesting for me was that there has been no change in interest rate policy from the BoC and no change in the posted rates for GIC’s at the bank.
Now most of the time TD is able to discount their rates up to around 0.30% for preferred customers, but even then customers are looking at a 5 year fixed rate of 4.25% vs. the 3.64% I received. 4.25% is still a good rate on a historical basis, but the rise in posted rates at TD and other financial institutions is raising a few alarms for me. Rates moving 60 bps in only 90 days demonstrates to me a strong reaction from the banks to where they perceive interest rates moving over the next year.
The banks are still lending to customers, but the price has gone up considerably in such a short period of time with no change to interest rate policy or short-term investments. All investors know that interest rates have only one direction to go, but the speed and scale of these rate increases definitely should be something individuals who face a mortgage renewal in the next six months take note of and act accordingly to.
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Fixed rate mortgage rates are tied to the 10 year govt bond market. As those bonds have sold off due improving economic outlook or risk appetite or whatever economic perspective you suscribe to, yields have risen and thus mortgage rates have risen. BOC prime is more relevant to variable.