{"id":8982,"date":"2018-05-02T09:12:01","date_gmt":"2018-05-02T16:12:01","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=8982"},"modified":"2018-05-02T09:12:01","modified_gmt":"2018-05-02T16:12:01","slug":"actions-to-take-right-now-as-3-major-banks-hike-mortgage-rates","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2018\/05\/actions-to-take-right-now-as-3-major-banks-hike-mortgage-rates\/","title":{"rendered":"Actions to Take Right Now as 3 Major Banks Hike Mortgage Rates"},"content":{"rendered":"<p style=\"text-align: justify;\">If Toronto-Dominion Bank wanted to put the housing market on alert, its rate hike this week did just that. The bank boosted its posted five-year fixed rate a walloping 0.45 percentage points, to 5.59%.<\/p>\n<p style=\"text-align: justify;\">Most banks are likely to follow to some degree (Royal Bank and National already announced more conservative hikes on Friday). The bottom line: it\u2019s going to become that much harder for more indebted Canadians to get a mortgage.<\/p>\n<p style=\"text-align: justify;\">As for why TD boosted its five-year posted rate by so much is a curious question. It certainly wasn\u2019t justified by rising funding costs alone. Those costs have risen less than 0.20 percentage points since the time the bank\u2019s benchmark posted rate last rose.<\/p>\n<p style=\"text-align: justify;\">Banks tend to announce supersized rate hikes for a variety of reasons, such as when they want to :<\/p>\n<p style=\"text-align: justify;\">\u2022 Add a revenue buffer to offset potential risk. (The national average home price is down 10-plus percent year over year. That\u2019s not what you love to see as a lender who has to set aside reserves for losses.)<br \/>\n\u2022 Float a trial balloon and see if other banks follow their lead with similarly oversized hikes.<br \/>\n\u2022 Encourage people to lock in.<\/p>\n<p style=\"text-align: justify;\">Conveniently for big banks, a jump in five-year posted rates (relative to actual rates) also creates potential for bigger mortgage penalties. These penalties apply if you break a fixed mortgage early, and they get even bigger if rates subsequently fall.<\/p>\n<p style=\"text-align: justify;\"><strong>The Stress Test Effect<\/strong><\/p>\n<p style=\"text-align: justify;\">Some breathed a sigh of relief when the Royal Bank of Canada followed TD\u2019s move on Friday. RBC hiked its posted five-year fixed just 0.20 percentage points, instead of 0.45. That means there\u2019s a chance the rate that lenders use to calculate whether you qualify for a mortgage may not rise as much as TD\u2019s hike would suggest.<\/p>\n<p style=\"text-align: justify;\">That\u2019s good news for young people trying to shoehorn themselves into a big-city mortgage. Newbie buyers are already under pressure from surging condo prices, rising rates and Ottawa\u2019s new mortgage stress test.<\/p>\n<p style=\"text-align: justify;\"><strong>Where to Now<\/strong><\/p>\n<p style=\"text-align: justify;\">There are two types of fixed mortgage rates : posted rates and discounted rates. Posted rates may be surging, but that doesn\u2019t mean the best rates available will rise as much.<\/p>\n<p style=\"text-align: justify;\">The best fixed mortgage rates are more directly tied to competitive forces and government bond yields than the illusory posted rates that banks advertise.<\/p>\n<p style=\"text-align: justify;\">This week, bond yields approached seven-year highs. While the market\u2019s betting they\u2019ll keep going, there\u2019s no indication they\u2019ll rise enough to shatter home prices or shut out millions from getting a mortgage.<\/p>\n<p style=\"text-align: justify;\"><strong>How to Play It<\/strong><\/p>\n<p style=\"text-align: justify;\">If you\u2019re on edge about surging rates, consider these tips :<\/p>\n<p style=\"text-align: justify;\">\u2022 Get a full preapproval at today\u2019s rates. Make sure the lender reviews all of your documentation and doesn\u2019t just provide a \u201crate hold.\u201d That will minimize your risk if rates keep climbing. More importantly, if you have a high ratio of debt to income (near or above 40%), it could also help you qualify for a bigger mortgage.<\/p>\n<p style=\"text-align: justify;\">\u2022 If you\u2019ve got a mortgage already and absolutely need to lock in, ask your lender if you can early renew into a competitive fixed rate. \u201cCompetitive\u201d being the key word. Lenders know that borrowers in closed mortgages have to pay a penalty to switch lenders, so they\u2019re often not too generous.<\/p>\n<p style=\"text-align: justify;\">\u2022 If locking in is your best move, talk to a broker to compare the savings of breaking your current rate and locking in at a better rate elsewhere. Depending on your penalty and closing costs, breaking up with your lender early sometimes makes sense.<\/p>\n<p style=\"text-align: justify;\">\u2022 If you\u2019ve got a manageable debt load and liquid savings to fall back on and can stomach a few more Bank of Canada hikes, variables are still worth a look. But to improve your odds versus locking in, you need to find one that\u2019s at least 0.75 of a percentage point below a comparable five-year fixed.<\/p>\n<p style=\"text-align: justify;\">\u2022 If you\u2019re up for renewal and your bank is quoting a pitiful rate because it thinks you are less rate-sensitive, higher risk and\/or can\u2019t qualify elsewhere, phone a broker. There are a few different ways to avoid the stress test and brokers know the most tricks to do it.<\/p>\n<p>\u2022 Rate sites still show insured five-year fixed rates as low as 2.99% or less, and uninsured rates (applicable to refinances and properties over $1-million) at 3.19%. If need be, use these as leverage with your lender of choice.<\/p>\n<p><a href=\"https:\/\/www.theglobeandmail.com\/investing\/personal-finance\/household-finances\/article-how-to-handle-rising-mortgage-rates\/?cmpid=rss&amp;click=dlvr.it\" target=\"_blank\" rel=\"noopener\">6 Actions to Consider Taking Right Now as 3 Major Banks Hike Mortgage Rates<\/a> by Robert McLister | The Golbe and Mail<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If Toronto-Dominion Bank wanted to put the housing market on alert, its rate hike this week did just that. The bank boosted its posted five-year fixed rate a walloping 0.45 &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2018\/05\/actions-to-take-right-now-as-3-major-banks-hike-mortgage-rates\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-8982","post","type-post","status-publish","format-standard","hentry","category-mortgage"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Actions to Take Right Now as 3 Major Banks Hike Mortgage Rates &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2018\/05\/actions-to-take-right-now-as-3-major-banks-hike-mortgage-rates\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Actions to Take Right Now as 3 Major Banks Hike Mortgage Rates &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"If Toronto-Dominion Bank wanted to put the housing market on alert, its rate hike this week did just that. 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