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Mortgage Rates On The Rise

Two of the combatants in Canada’s latest mortgage war are already signaling they wants a truce.

Royal Bank of Canada and TD Bank say they will move residential mortgage rates higher on Thursday.

The rate increase comes less than three weeks after Bank of Montreal appeared to launch a new mortgage war among lenders by cutting its rates, with some edging just below 3 per cent.

Housing market analyst Will Dunning said the two banks appear to reacting to changes in the bond market.

“The cost of funding has probably increased for them because bond yields have gone up quite a lot in the last month or so, because there’s more optimism in the U.S.,” Dunning said.

Rising rates mean banks have to pay more for the money they raise to lend to home buyers.

“The question might become whether this is the turning point,” said Dunning. “Is it the end of low rates, and are rates going to start rising a lot?”

“Probably not,” he said, answering his own question. “But who knows?”

A gradual upward drift in rates is more likely, he said:

“I don’t think it’s a real change in the economic environment. Not one that’s going to bring sustained, much higher rates.”

Both banks said their five-year closed rate will go up 0.2 percentage points to 5.44 per cent.

Similarly their special four-year fixed rate offer will go up 0.5 percentage points to 3.49 per cent.

Royal offered only a brief comment, when asked about the rate move.

“Some of our posted rates have risen to reflect cost increases over time,” it said in a written statement.

Canadian Imperial Bank of Commerce released a survey Monday indicating Canadians may be concluding that mortgages are less likely to keep falling.

Home owners are more likely to choose fixed rate mortgages today than they were a year ago, it found.

The survey by Harris/Decima, taken in early March, showed 50 per cent of Canadians would choose a fixed rate mortgage today, up from 39 per cent a year ago.

Only 6 per cent think rates will be lower a year from now. The survey of 1,000 adults is considered accurate within plus or minus 3.1 per centage points, 19 time out of 20.

Article by John Spears from Moneyville.ca

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Posted: Tuesday, March 27, 2012 10:50 AM by Sutton Realty
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