Now that TD Bank has raised mortgage rates, what's next?

Thousands of Canadian homeowners are now paying more for their mortgages after the surprise move from TD Canada Trust to raise one of its prime lending rates. 

• TD Bank raises mortgage prime rate to 2.85%

Effective November 1, the bank's Mortgage Prime rate for variable mortgages jumped 0.15 points to 2.85 per cent.

Homeowners with fixed-rate mortgages from TD Bank aren't affected by the rate hike. But for those who have or may be considering TD variable rates, owning a home just got more expensive.

The bank says that by taking "slightly longer" to pay off their mortgages, customers can avoid higher monthly expenses. But if they want to pay the mortgage off faster, the amount or frequency of payments will have to be increased.

Dominion Lending mortgage broker Jason Georgopoulos says the increase will be manageable for most Toronto homeowners. But with sky-high real estate costs in the city and many people already maxed out, Georgopoulos says even a modest bump in monthly costs could be trouble for some borrowers.

And switching to another bank may not be an option for long.

Georgopoulos says it's uncommon for the major banks to maintain much of a difference between their prime lending rates, so he foresees one of two scenarios playing out: either the other banks will follow TD Canada Trust and raise their own rates or TD will drop back down.

"We'll probably know within the next few days. I've seen it happen both ways," Georgopoulos said in an interview with CBC News.

Effect on Toronto real estate

Any effect TD Bank's move will have on Toronto's real estate market will take more time to materialize.

But Toronto realtor Desmond Brown says higher lending rates at big banks will only add to a cooling trend he's already starting to notice.

"We're seeing a bit of softening right now,"  Brown said in an interview. In recent weeks, Brown says he's been seeing more conditional offers getting accepted and fewer properties attracting multiple offers.

Brown thinks the softening is due to the new mortgage rules that have come into effect, a recent report from the Canada Mortgage and Housing Corporation that flagged nine housing markets as "overvalued", and the usual slowdown in real estate activity that occurs in the fall.

"It's a good time to buy," Brown said

Why now?

As far as why TD Canada Trust decided to raise its rates, Georgopoulos says the "timing is suspect."

"Rates are going up at big banks at a time when fewer people have the option not to use them."

Georgopoulos says the new mortgage rules implemented by the federal government have now made it more expensive for smaller lenders to issue certain kinds of mortgages and that's pushing more business to the big banks.

"I think they do owe an explanation of why at this time they've decided to raise rates when really I don't see any market forces that are pushing them that way."