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The Drivers behind the Big Banks Mortgage Rate Increases

by Yvonne von Jena | January 15, 2016


In recent weeks, mortgage rates have increased at many of the big banks. Just this week, CIBC was the latest big bank to increase mortgage rates saying that it is “responding to the market.” The move follows recent increases by RBC, TD and Scotiabank. Robert McLister of Canadian Mortgage Trends believes that there are a host of reasons why both fixed and variable mortgage rates have been ticking higher, although these all seem to come back to higher capital costs for the banks. A few factors in particular are as follows:

  1. Investor perceptions about increasing levels of risk in the housing market and the financial sector is being priced into their funding.
  2. Recent mortgage rule changes from Ottawa aimed at reducing risk in the country’s housing market include higher fees charged to lenders looking to securitize their government-backed mortgages and a proposal that could force lenders to hold more capital against some insured mortgage loans.
  3. The possibility that the Bank of Canada will cut its benchmark lending rate again, which would put pressure on banks’ lending margins, and
  4. Short-term interest rates that have been climbing higher, which is a major factor in the pricing of variable-rate mortgages.
All told, “It’s going to be more expensive for banks to hold mortgages,” said Mr. McLister.


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