On 4/4/2011, the Toronto Dominion Bank (TD Canada Trust) [TD/tse:TD], announced fixed mortgage rate increases. It is expected that the other big banks (Royal Bank, CIBC, Scotia, National Bank, BMO, etc) will follow suite and raise rates as well.
TD Canada Trust increased its 5 year closed fixed mortgage rate 0.35% to 5.69%. Its special fixed rate offer for 5 year closed increased to 4.44%. Its 6 month convertible did not change at 4.45%. Its 1 year closed mortgage will increased 0.20% to 3.70%. Other fixed rates and special rate offers also increased from 0.20% to 0.35%. Rates become effective April 5, 2011.
The rate hikes are a result of increased borrowing costs due to interest rates rising in the bond market. Bond yields have significantly increased over the last few days due to falling bond prices. Banks which use bond markets to borrow money, are paying higher rates to borrow.
Like last time (December 2010), this comes after the Bank of Canada announced it would hold the overnight lending rate steady at 1% on 3/1/2011. However, as we’ve seen in the past the commercial banks no longer follow the central bank’s rate decisions, and act independently on their own rates.
Investors and consumers should expect the central bank’s rate to increase significantly and swiftly, once the economy begins to grow at a stronger rate. We can also expect lending rates from commercial banks to increase much more rapidly and earlier, than the overnight lending rate increases of the central bank.
For now, the Bank of Canada indicated rates may remain steady for a while longer. But we should expect by the 3rd quarter of 2011 to start seeing increases of at least 0.25% at first, before more rapid and significant increases follow.
Consumers and investor should secure rates while they are low, and other lines of credit. Although the credit may not be used, it may be much more difficult to secure later on.