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The big banks have started hiking fixed mortgage rates, but home buyers don’t need to panic:
October 15, 2018 @ 10:37 AM by: Jagdeep Sacha
The big banks have started hiking fixed mortgage rates, but home buyers don’t need to panic:
Fixed mortgage rates are hitting multiyear highs. But so far, qualifying for a mortgage isn’t getting much harder. For roughly nine in 10 mortgage borrowers, mortgage approval depends on passing the government’s “stress test.” As of this moment, that means applicants must prove they can afford a rate of at least 5.34 percent (a.k.a. the “mortgage qualifying rate” or “MQR”). Despite a surge in bond yields, which typically lifts fixed mortgage rates, most banks have held their posted five-year fixed rates at 5.34 percent. But on Friday morning we saw the first big bank break ranks in five months. Bank of Nova Scotia hiked its posted five-year fixed rate by 10 basis points to 5.44 percent. For the MQR to rise and make life tougher for prospective borrowers, at least two more banks would have to lift their posted five-year fixed rates. (The MQR is based on a mode average of the Bix Six banks’ posted five-year fixed rates.) That’s possible, but not necessarily probable near-term, at least until the five-year government bond yield closes above 2.50 percent – a 10- to 15-basis-point increase. That would mark a new seven-and-a-half year high and probably be enough to coax posted rates higher. The MQR aside, the Big Six banks have all been lifting various discounted and posted fixed rates – not including the posted five-year fixed – prior to Friday. (Discounted rates are what customers typically pay for a mortgage and are below that of the posted rates publicly advertised by the lenders.)
Just on Friday morning, Scotiabank and CIBC announced a host of posted and discounted fixed-rate increases. That’s not exactly surprising given the uptrend in yields and given the banks’ fourth quarter is historically a weak season for mortgage discounts, to begin with. What’s next In terms of the actual discounted rates people pay, we probably won’t see big banks take fixed rates much higher, near-term. Bond yields are dropping as we speak, in part because of crashing Canadian oil prices. For now, keep an eye on that 2.50-per-cent mark for the five-year yield.
We’ll likely need a break above that to see the next leg up in fixed mortgage pricing. As for variable mortgage rates, the market is holding its breath for the Bank of Canada meeting on Oct. 24. Traders are betting on another quarter-percentage-point rate hike that day. That would lift the prime rate to 3.95 percent and suck more dollars from the pockets of variable-rate borrowers. 
By: Robert McLister

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