Canada's largest mortgage financier, the Royal Bank of Canada (RBC), is all set to lift the interest rates on home loans shortly, possibly marking the end of the period of historically low interest rates.
According to RBC, the rise will vary between 1/10 and 2/10 of a point, subject to the category of mortgage. The rise in interest rates will influence the five-year closed mortgage, which has been offered at 3.09%, most. This was actually a promotional rate lower than the usual rate of 5.14%. This special rate is expected to go up to 3.29%.
Several banks have been proffering promotional rates of below 3% on the standard term loan during the past year, expecting to persuade buyers into the realty market and seize a part of their rivals' market share. In fact, the 5-year fixed term loan is definitely the most popular mortgage item in the market.
In addition to receiving deposits, the RBC is Canada's largest mortgage lender having an estimated $195 billion unpaid home loans. Its decision to hike the mortgage rates is likely to create a ripple in the market and also soon prompt its rivals like TD Bank and Scotiabank to raise their rates too.
One-year closed mortgages offered by RBC will increase by 0.14 percentage point to 3.14%, besides hikes of 1/10 of a point for 2-year, 3-year and 4-year mortgages. RBC is the first among the leading Canadian banks to declare increased mortgage rates since the country's bond prices nose-dived in May 2013. As the Canadian banks have been utilizing the bond market to finance their commercial funding activities, other mortgagees are also likely to follow suit shortly.
It is believed that the Ottawa-based policymakers would not be bothered due to the rate hike by the commercial lenders. In fact, they have worked actively to cool down the residential property market, which, according to economists, has been valued very highly in several cities owing to the record-low interest rates.