Canadian banks raise rates as finance costs rise

Royal Bank of Canada raised mortgage rates for the second time in two weeks, setting the stage for another wave of hikes by major banks as they grapple with higher financing costs. “This is just the beginning,” said Canadian Imperial Bank of Commerce economist Benjamin Tal. “There is no reason to believe that this will stop at this point.” Indeed, by late Tuesday Bank of Nova Scotia had already followed suit, matching RBC’s 25 basis point hike on fixed-rate mortgages. Bankers at rival institutions were weighing their options. RBC kicked off the increases in March when it increased the price of fixed-rate five-year mortgages by 0.60 percentage points to 5.85 per cent; many rivals followed suit. Following Tuesday’s move, RBC and Scotiabank’s posted rates will be 6.10 per cent.

Opinion:

Increasing the rate for mortgage isn’t such a bad idea because  most homeowners wind up paying a rate that’s discounted from the posted rate. The actual rate that homeowners pays depends on a variety of factors including their financial situation, whether they use a mortgage broker, and how good they are at negotiating. Small companies such as ING Direct decided not to boost its rates because the bank use the Internet rather than an expensive branch network to reach customers,  therefore it creates lower costs  and have the ability  to charge less.

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