Over the last decade, the average increase to posted 5-year fixed rates has been 24 bps. A 45-bps bump is rare, and the most in eight years.
If at least two other Big 6 banks follow TD’s lead (and they may), the mortgage qualifying rate will jump enough to shave off about 3% from a typical borrower’s buying power. That makes the government’s mortgage stress test all the more stressful and, of course, could:
- add downward pressure to home prices, and
- trap more people with their bank at renewal, to the extent they can’t qualify elsewhere.
- By the way, OSFI’s imposition of the stress test on renewals (switches to a new lender) is easily one of the worst policy decisions in Canadian mortgage history. It’s giving banks a license to quote borrowers with higher debt ratios stupidly noncompetitive rates, despite those borrowers being otherwise qualified and having perfect repayment records for 5+ years. The banking regulator should be utterly ashamed by how much it is costing less qualified renewers.
Most of the big non-bank lenders have already boosted their best 5-year fixed rates by about 10-15 bps. But TD is the first of the Big 6 to move its posted 5-year fixed rate since January. Here’s a look at all the best bank rates as they stand currently.
On the variable side, discounts from prime rate have been stable to slightly better in recent weeks. The spread between the best 5-year fixed and variable rates is now 76 bps, its widest since December 2013. The bigger it gets, the greater your odds of winning in a variable term, other things equal.
If you want to play the variable game now, you’re staring at the possibility of two more hikes by next January. That’s assuming market expectations are accurate, and they’re often not. If you’ve got a higher debt load and minimal liquid assets, don’t be a hero, seek shelter in a longer fixed term. You can still find them below 3% on insured mortgages, and as low as 3.19% if uninsured.
At most, if your finances aren’t solid and you do want to gamble on a variable, consider: