Major Banks Raise Interest Rates
By on Feb 09, 2011
Following months of speculation, three of the major Canadian banks have raised their interest rates. The Royal Bank of Canada, CIBC Mortgages and TD Mortgages all moved their rates up 0.15 - 0.2%. A five year fixed rate has now been raised to 5.44%. These increases will take effect for February 9, 2011.
The Bank of Nova Scotia and the Bank of Montreal have yet to raise their rates, however the expectation is that they will do so in the following days. A five year fixed rate at both banks is still listed at 5.19%.
Canada has always been one of the top financially regulated countries in the world, and have been a leader in ensuring its residents do not over-extend themselves, maintaining a manageable level of debt.
These rate increases are the first response from the banking industry to Finance Minister Jim Flaherty's mortgage lending restrictions, which we announced on January 17th.
The first major change introduced by Flaherty was reducing the maximum amortization period to 30 years from 35 years. This rule will effect government backed insured mortgages, with loan to value ratios of more than 80 percent.
The second change will see the maximum amount of Canadians can borrow in refinancing their mortgage. The current rule allows for refinancing up to 90 percent of a homes’ equity, however the new rule will see that limited to 85 percent of equity.
Finally, the government will no longer offer insurance on credit secured by homes through Home Equity lines of credit.
These new rules will take effect on March 22nd, 2011.
Rates are still at historic lows, and it has been expected for years that they could not be maintained at this low level. The question remains, how will this affect the real estate market, both the resale and new construction sales? While many experts will speculate, the question will inevitably be answered over time.
