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RBC Mortgage Rate Hike Could Be Just The Beginning

06/07/2013 04:07 EDT | Updated 06/07/2013 05:35 EDT
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The Royal Bank of Canada announced Friday it's hiking interest rates on mortgages, in a move that could signal that rates for home loans have passed their bottom.

A five-year, closed rate offer at RBC will now go for 3.29 per cent, still very low by historical standards but higher than the 3.09 per cent rate the bank had been offering.

On a $400,000 mortgage, that's a difference of some $42 per month, assuming a 25-year mortgage.

RBC's move makes it likely that mortgage rates will rise at other Canadian lenders, as Canada's big banks tend to follow one another on interest rates.

The Globe and Mail reports that RBC is making the move because it is seeing its own borrowing costs rising, thanks to rising costs on the bond markets, which are closely tied to what banks can charge for fixed-rate mortgages.

If that's the case, other lenders will likely have to follow suit, as they have similar borrowing costs.

While rising rates may be bad news for homeowners and prospective buyers, they will likely be welcomed by Finance Minister Jim Flaherty, whose concern that low interest rates are overheating Canada's housing market has become so intense that he actually placed a call to Manulife Bank of Canada in March, asking them to rescind a discount 2.89-per-cent mortgage offer.

(Flaherty seemed not to notice that plenty of mortgage brokers around Canada are offering rates even below 2.89 per cent.)

If the banks are raising rates, they likely won't raise them very far, as the Bank of Canada sets the overnight lending rate that guides borrowing costs in Canada, and the bank isn't expected to raise rates before the second half of 2014.

RBC's new rates take effect on Monday.

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