Inflation nudges up mortgage rates
The cost of borrowing money to buy a home rose another notch late last week as bond yields jumped amid fears that growing inflation pressures are becoming too strong to ignore.
Canada’s largest bank, the Royal announced its residential mortgage rates would increase between 0.10 and 0.15 percentage points, bringing its five-year closed rate to 7.29 per cent.
“The global economy has a lot more momentum than most people, including central bankers believed,” said Doug Porter, deputy chief economist with BMO Nesbitt Burns.
“It’s beginning to put upward pressure on inflation in a variety of areas.”
Interest rates across North America have become the focal point of money watchers lately, with speculation increasing almost daily that the U.S. Federal Reserve may raise rather than lower rates, even if that doesn’t happen immediately.
Earlier this month, the Bank of Canada warned bluntly it could raise interest rates, with expectations the overnight rate of 4.25 per cent could rise a quarter point next month.
Much of Canada’s mortgage market is tied to prime rates, which are based on the central bank’s overnight rate.
On May 29, Canada’s major banks raised their residential mortgage rates by nearly one third of a point in expectation of a rate hike from the Bank of Canada.
The latest rate hikes come against a backdrop of a Canadian housing market that continues to sizzle.
Average resale prices recently climbed above the $300,000 mark for the first time, while sales values and listings all set fresh records this spring driven by a buying frenzy in the west.