We reported earlier this week that fixed mortgage rates were on the rise, and they’ve continued to creep up throughout the week.
RBC and National Bank became the latest Big 6 banks to increase their posted fixed rates this week, following previous increases by BMO and CIBC.
RBC hiked its 1- to 5-year fixed rates by 20 basis points, or 0.20%, while National Bank increased its 1- to 3-year rates by 10-15 bps.
Numerous other lenders and brokerages have continued to increase their fixed mortgage rates. According to MortgageLogic.news, the lowest nationally-available deep-discount 5-year fixed rates are up an average of 30 bps over the past two weeks.
The hikes come in the wake of a run-up in Government of Canadian bond yields, which lead fixed mortgage rate pricing.
What’s driving the rate hikes?
“The primary driver of Canada’s latest yield spike was the disappointing CPI data on May 16,” Rob McLister, editor of MortgageLogic.news, told CMT.
That data from Statistics Canada revealed that the consumer price index ticked up in April, ending a five-month deceleration trend. Headline inflation rose to 4.4% in April, up from 4.3% in March, and was driven largely by rising rents and higher mortgage interest costs.
The results signalled that the Bank of Canada may have a more difficult time than expected in bringing inflation back down to its 2% target.
“Multiple inflation measures sped up, putting the BoC on edge and boosting hike probabilities,” McLister added. “Just as important was the jump in U.S. yields, which took Canadian rates along for the ride.”
But observers say rates should now begin to stabilize given that bond yields have eased.
“I would think most of the increases are through to the mortgage market right now, assuming we don’t see an upward trajectory in bond yields,” Ryan Sims, a mortgage TMG The Mortgage Group broker and former investment banker told CMT.
The 5-year bond yield hit a resistance level at 3.60% and subsequently dropped back below 3.50%, he noted.
“That is basically a triple top for 2023, so that is a major resistance level to beat,” he said. “If we see yields go over 3.60%, then the next stop is around 4.00% range, which would put fixed 5-year mortgages back to around the 5.99% to 6.09% range. Personally, I don’t think we’ll get there.”
Is it time to consider a variable rate?
With the recent surge in fixed mortgage rates putting them closer on par with variables, and with potential Bank of Canada rate cuts by early next year, some are wondering if borrowers should again be considering variable rates.
“Floating rates will again have their day in the sun. It’s just not right now,” says McLister.
“Once BoC cuts become more imminent, then I’d go shopping for a variable. Until then, the rate premium and potential upside for prime suggest the risk/reward isn’t there for most borrowers.”
For those who are in the market for a variable-rate product, however, McLister notes that insured variable-rate mortgages—those with a down payment of less than 20%—are currently more appealing compared to the uninsured counterparts thanks to a roughly 50-bos rate discount.