Fixed term mortgage rates see largest one-day increase since 1996

The threat of higher fixed term mortgage rates became a reality this morning as the Royal Bank and TD Canada Trust announced significant hikes. The Laurentain Bank followed suit and it’s believed that other major lenders will quickly fall in line.

Effective tomorrow, the posted rate for a five-year closed mortgage climbs by six-tenths of a percentage point with all three lenders, the largest one-day rate hike since 1996. Shorter-term fixed rate mortgages will also increase as much as four-tenths of a percentage point.

Fixed term mortgage rates are impacted by five-year bond yields, which have been climbing in recent months. Still, as early as just last week major lenders have been aggressively competing for market share. Just last week, the TD dropped its ten-year fixed rate to its lowest point ever, 4.99 percent. Today’s announcement represents a sudden and sharp change that seems to have taken the market by surprise.

All three lenders are currently offering promotional rates on their five-year fixed product that range from 4.54 percent to 4.59 percent, but effective April 19 when new mortgage rules take effect buyers selecting terms of less than five-years, fixed or variable, will be required to qualify using the five-year posted rates. A Saskatoon home buyer who qualifies for $300,000 in mortgage debt based on the current posted rate of 5.25 percent amortized over 25 years, will see their maximum allowable mortgage drop to $283,000 at the new rate, assuming it’s still in effect on April 19.

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Norm Fisher
Royal LePage Saskatoon Real Estate

Comments

  1. Norm,

    Hoho, connection. “The fundamentals” in those cities are probably millionairs and the “fundamentals” here in Saskatoon are 0.5 millionairs, :). I do know there are young couples from a certain Asian country who can pay $400,000 in cash. I think if they can pay $4,000,000 in cash, they’d be in Vancouver…

    • Cindy,

      You make an excellent point. Equity is one of the factors that we rarely take into account yet it can be a significant factor.

  2. Looking,

    Norm mentioned it would be much cheaper if you take on a large amount on 3.89% than on 6.75%. However, if you are to put down a large down payment, you should calculate yourself if you can wait a little bit longer if the price does come down later this summer or in the fall.

  3. Distant is the memory that all the banks raised rates not many short months back and then promptly had to lower them right back down again. Funny how short a lot of people’s memory is.
    But no, for now, everyone and their mother is screaming that rates can only go up and everyone should lock in now. Well, overall they have remained at bargain basement levels. I for one hold a variable prime minus with no intention of locking it up, even at 3.75 plus penalty offered last week. Guess i just like the fact that over half of my payment actually goes to principle, while after prime rates do eventually increase the interest paid on that balance will be less.
    Funny, when everyone thinks one thing, the world has a tendancy to do quite the opposite. Time will tell.

  4. Looking says:

    So what is the consensus on prices over the next few months? I will be buying before the end of July. I have a large down payment and I already locked in a 3.89% rate.

  5. Cindy,

    And it’s not just timing but a variety of other factors, like interest rates for instance. A $300,000 home at 3.89% is cheaper than a $230,000 at 6.75% for those who have to borrow a good chunk of the money. Prices may come down but rates are almost certainly going to move higher.

    I don’t think anyone is suggesting that the price of a home shouldn’t be higher in Vancouver or Toronto. I was only thinking about the market connection to the so-called fundamentals. These cities are some of the better examples of the disconnect between incomes and prices.

  6. As for “timing”, real bears don’t do timing but simply be patient. The problem is it’s difficult to hold on when nobody knows when the good day comes, though history tells people it will come. When all the money pour into the real estate market all over the world, what we see today is inevitable. The first-time home buyers are the ones who suffer most. However, think of those born in war time or a place with a war that never ends, swallowing a lot of debt is probably not an big deal… Sad to say this.

    As for why Saskatoon is way cheaper than Vancouver/Toronto, I figure more and wealthier people prefer life styles only available in big cities, plus better climate and scenery (not sure Toronto has a “better” climate though).

    Stock market seems to perform better now, another nail?

  7. Bookrat says:

    Yes, I’ll be there tonight. We should all gather ’round Norm so we can introduce ourselves to one another!

    Norm, Daniel’s comment reminded me of the posting on Larry Yatkowsky’s blog on the subject of jingle-mail (http://www.yattermatters.com/real-estate/strategic-mortgage/). You commented on it here and there both, and I followed you there and made my own comment… but I know my response was posted right about the time you went on holidays so I wasn’t sure if you ever saw it. Sort of late now to be responding on the blog itself, but was curious if you ever got a chance to see what I had said there.

    Looking at Larry’s blog today to try and find that posting, I noticed that vancouver officially broke the $1 million mark (on average) for a detached house last month. Yikes!

    • Hey Bookrat,

      “We should all gather ’round Norm so we can introduce ourselves to one another!”

      Absolutely and I might even get you a drink after the event if you do. That would be fun.

      I did see your comment, and you’re right, I was well away from the technology grid by the time you posted and I felt it was a little late by the time I returned. Furthermore, I was not so completely committed to my position that I was prepared to tackle yours. :)

  8. Jen,

    “Hilarious! Seriously though, did the house sell fast?”

    Uh-huh, with multiples. :)

    Daniel,

    Norm, Jen and Bookrat, for sure. By the way, I have two tickets available. I’m sure I can find someone to use them but it turns out that Turner has limited appeal with Realtors. If anyone here who hasn’t got one would like to go please hit me up here. They’re free, by the way.

    Gene,

    Welcome to Saskatoon! :) You make a great point. There does seem to be a significant disconnect between the real estate market and the “fundamentals.” The past few years have convinced me that nobody really knows what’s coming.

  9. Gene Simmons says:

    The bears can point to a bunch of numbers, or different ways to calculate if we are in a bubble. But even if they are right, they are missing one thing. Timing; few can time the market, whether it be oil, good or real estate. Most know that the appetite for debt for some people have made them rather obese but I just look at average price for a house in Vancouver compared to here. Incomes are relatively the same, but there average price close to a mill and ours is less than 300. So I have to say ” It is different here”

    Great story in the SP

  10. Just remember: first-time homebuyers can be grateful that we have “jingle mail” in this province. Provided they don’t take out a HELOC or refinance with another lender, should the housing market tank they can simply walk away (it’s a bit more involved, naturally). Yes, they may lose their down payment and their credit rating will surely take a big hit – but CHMC has no legal recourse. If you’re $100k+ underwater and looking at 35-years of mortgage payments at 6%+ rates, it’s a very nice “get out of jail free” card.

  11. Who’s going to hear Garth tomorrow?

  12. Norm,

    Hilarious! Seriously though, did the house sell fast? ;)

  13. Just because I’m really intrigued, let’s get this out of the way…

    “A private world for you and your dong.”

    Please, please explain… I can’t see Ringo’s comment- is it on another thread?

    “Bears – How many final nails will this coffin require?”

    Could we define the housing coffin first? Depending on the size, we may have a few nails in already.

  14. Everybody is saying the variable rate will increase by the end of June. Bank of Canada will make a rate announcement on Apr. 20 ( please correct the date if I’m wrong). Is it possible that what they announce on that day will be in effect right away?

    • Cindy,

      April 20 is the day, and yes, It’s very possible that rates could increase at that time. You’ll recall Carney’s rate promise was clearly conditional on growth. He’s been serving up reminders of that condition in recent days. You probably heard today that Canada’s economy grew at its fastest pace in three years in January.

      Ringo,

      Funny stuff. Particularly like, “A private world for you and your dong.” :)

      Brian,

      Bubble busted makes a great point. Ups and downs mean different things to different people. A falling sky to you and I may mean a buying opportunity for the next person. Nine times out of ten a real bearish attitude is a sign of a motivated prospect. By the way, “the vast majority of folks on here calling for 30 and 40% dips in prices in late 2008″ seems like a bit of an overstatement. Certainly the vast majority saw a correction coming but it was a pretty small minority predicting those kinds of drops.

      Bears – How many final nails will this coffin require?

  15. “with good forecasts for our natural resources”

    By whom? The Saskatchewan Party?
    Take existing forecast and subtract $2 Billion again?

  16. Just Waiting says:

    Lets summarize the factors that will result in a real estate market downturn.

    1. Fixed mortgage rates had a big jump this week and variable rates will probably go up starting July.

    2. New CMHC qualification rules push down the max loan limits by up to 10% so first time buyers will have less buying power. The 5 year fixed mortgage with higher payments will be the only option for most buyers. Buyers that were trying to buy with 35 year amortization, variable rate loans in order to get low monthly payments will vanish.

    3. Those buying a home with a legal suite will qualify for smaller loans under the new April 19th rules.

    4. Investors or speculators buying non-owner occupied properties will now have to put down 20% instead of 5% starting April 19th. They will also be eligible for smaller loans because the 80% rental income may no longer used to reduce expenses. Instead 50% of rental income is added to their annual income to qualify for a loan.

    5. Refinancing is now limited to 90% under the new rules vs. 95% before April 19th. Hard to use the house as an ATM now.

    6. There is another CMHC rule which kicks in April 9th and will affect the self-employed. Basically they are significantly tightening up on “stated income” or liar loans.
    Insured Stated Income Programs Tighten Up

  17. bubble busted says:

    The sky is not falling, the water is rising for some. P/E, historical affordability, price to income shows that this market is in a bubble. Debt is at alltime highs. New mortgage rules and slowly increasing rates will drag down confidence and prices. For most the bubble deflating willnot hurt them much. For sellers this is an great time. For buyers with little down, they will underwater for quite some time going forward. With any market there are opportunities up or down. You just want to be on the right side of the wave. And if you are paying attention you will have an idea of what happens next.

  18. Again with the old “the sky is falling” on this blog from the comments. Everyone knew rates were going up and .6% doesn’t equate to the RE market beginning to go into free fall in a province with rarely seen positive inmigration flows and solid employment numbers, with good forecasts for our natural resources. This is also after several drops in discounted rates recently which will only result in reseting the discounted rate to where it was before the banks market share battle began. And the discounted rate is what will be used as the qualifying rate for any fixed mortgage 5 years or more.
    Seem to recall the vast majority of folks on here calling for 30 and 40% dips in prices in late 2008 when listings reached its high point and now we’re at a relatively balanced market listings-buyers wise. The only effect here will be buyers who haven’t locked in a rate to shop for one right now.

  19. Bubble Busted
    “Didley” of course is subjective. A few months ago if you kept your eyes open you could actually get something very decent, perhaps some cosmetic work needed.
    Today, I’d tend to agree with you for a house. But I’m sure you can still find a very nice apt for that. And most 20 year olds haven’t had the time to accumulate a “pile of debt.”

  20. bubble busted says:

    200,000 mortgage in saskatoon will get a first time buyer didley. Add in that over 90% have a pile of debt and debt levels for the average canadian are almost double compared to the last housing bubble in 90. At least then we could look forward to lower rates. Now we can expect rates to go up. The globe and mail said 20% of households are struggling with finances. This won’t end pretty for some.

  21. It seems gvernment saved us from recession by stimulating house market. It took a risk to push the house market into a dangerous situation, but it works. Now it is time to cool the house market and control inflation. Stay calm, see fever goes down and everything will get back to normal.

  22. Hey Tyler, keep in mind this is Saskatoon where a 200 000 mortgage is cheaper than renting.

  23. I thought renting and saving to one day buy a house was standard.
    Apparently not in Saskatoon, where every 19 year old kid seems to have gotten a $200,000 mortgage because they all deserve to own a cheap house or condo.

  24. Wow, tougher lending rules and higher rates all at the same time, maybe a brief blip until then, but guessing that after April 19th, sales are going to take it in the teeth.

    Might be good for me, I’ve been renting the past 3 years, and on advice of I believe Crikey, have been investing the difference/savings from renting. Investments going up, and sounds like prices are about to go down. Plus it’s cheaper to buy in Regina already, though less of a discount than it was when I moved down here…

    Here’s to prices dropping, when all those who have to borrow the majority of price suddenly can’t afford as much.

  25. bubble busted says:

    This will result in one last dash to the housing bubble party. After the peak who knows how low it will go

  26. It is a great deal, but we had already went with ING when it became available. Whoever manages to snag 3.75 during this brief window should consider themselves very lucky :D

  27. I see BMO still has their recently-introduced 3.75% mortgage. How much longer can they keep that available?

    • Hey Nate,

      The major lenders seem to follow each other quite closely so I’ll be surprised if the 3.75% promotional rate makes it to the weekend. RBC, TD and Laurentian are all offering promotional rates which are below posted but they also came up .6% on the 5-year.

      If you don’t mind me asking, is the BMO 5-year promotional what you guys went with for your new home? That’s a sweet deal.