TD, Royal Bank both raise their fixed mortgage rates

Two of Canada's biggest lenders have hiked their benchmark mortgage rates, with Toronto-Dominion Bank raising its posted five-year fixed rate by 45 hundredths of a percentage point and Royal Bank moving its up by 20.

TD moved this week to raise five of its fixed-rate mortgages by between 10 and 50 hundredths of a percentage point.

Starting now:

• TD's two-year closed rate is 3.44 per cent, up from 3.34 previously.

• TD's three-year closed rate is 3.59 per cent, up from 3.49 previously.

• TD's benchmark five-year closed rate is 5.59 per cent, up from 5.14 per cent.

• TD's six-year closed rate is 5.64 per cent, up from 5.14 per cent previously.

• TD's seven-year closed rate is  5.80 per cent, up from 5.3 per cent previously.

"Adjusting our rates is not a decision we take lightly," TD spokesperson Julie Bellissimo told CBC News in a statement. "Even with this change, lending rates remain competitive and at historically low levels."

Fixed-rate mortgages are tied to what's happening in the bond market, and bond yields in Canada and the U.S. are near multi-year highs right now, which is why banks are passing those added costs on to consumers. "We look at a number of factors when determining rates including the competitive landscape, the cost of lending and managing risk," Bellissimo said.

A plurality of first-time buyers opt for a five-year, fixed-rate mortgages, but most are able to negotiate better rates than the posted ones. The average of the big banks' posted rates is one of the two benchmarks by which the banks measure their new "stress tests" of buyers.

Which means even if you can negotiate a better rate — and most people do — your lender is obligated to test your ability to pay back the loan as though your mortgage rate is that high.

And if you don't pass the test, the bank can't loan you the money.

After TD raised its rates, Royal Bank made a change of its own, boosting fixed-rate mortgages of between one and four years by 15 hundredths of a point, and five-to-10-year loans by 20 hundredths of a point as of Monday.

For a benchmark five-year fixed-rate loan, that means Royal's new rate will be 5.34 per cent, as of April 30.

Among Canada's three other big banks, Scotia and BMO currently have a five-year rate of 5.14 per cent, while CIBC is at 4.99.

Now that two of the banks have moved, would-be homeowners should expect more of the same from other lenders, author and financial advisor Hilliard MacBeth said in an interview Friday. "Seems to me that once one of them moves, they all seem to move," he said. "I've never seen it any other way."

While still low by historical standards, at almost six per cent, MacBeth says rates are now approaching the level where the interest costs double the price of the home over 25 years.

"With a $100,000 down payment and an assist from the bank of mom and dad," he said, "you buy a $600,000 house with a $500,000 mortgage."

At 6.5 per cent interest, that $500,000 mortgage ends up costing more than $500,000 in interest over 25 years, he says, bringing the actual price tag of the home to almost $1.1 million. 

"It's funny how people focus on the rate, because it's not the rate that matters, it's that we're paying almost triple what we did 15 years ago for our houses," MacBeth said.

• ANALYSIS: Rates are about to go up — no, for real this time

Fee-only financial planner Jason Heath says the move is obviously bad news for first-time buyers, but those hit hardest are likely to be existing owners, almost half of which are due to renew their mortgages this year.

"I think you'll see more banks able to raise rates, because they have some borrowers captive," Heath said in an interview.

"There's going to be less competition between banks and less ability for borrowers to move from bank to bank."