For many millennials, or those looking to become homeowners for the first time, the interest rate one will receive on the mortgage they lock in today can play a huge role in determining the state of one’s household finances for years to come.
Given new stress tests put in place by Canadian regulators looking to ensure the housing market does not become overheated and remains somewhat affordable for the working class, those who have managed to scrape together a down payment may still not be able to afford the higher rates one will need to be able to qualify for under the new rules.
Adding fuel to this fire, this week both Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) announced that they will be raising their benchmark interest rates as of this week, in response to higher borrowing costs reflected in a rising five-year Canadian Government Bond Rate.
While TD has committed to a 45-basis-point increase, Royal Bank has indicated it will be raising its benchmark by 20 basis points for its five- and 10-year rates, with its one and four year products seeing an increase of 15 basis points and its variable rate closed mortgages decreasing by 15 basis points.
For homeowners considering a variable rate mortgage as the way to go, consider other borrowers who have been hit with rising interest rates in recent years as central banks have begun to tighten.
While locking in a mortgage may now turn out to be a more expensive exercise, it appears the hiking schedule in Canada and the U.S. may be picking up speed, making future decisions even more costly.
Invest wisely, my friends.
