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Canadian buyers were already facing rising prices and a tight supply of homes for sale. Now they are starting to face another challenge as they venture into the country’s sizzling real estate market: rising mortgage rates.

Several of Canada’s major banks recently increased their rates on fixed-rate mortgages, something they had not done since before the pandemic. As a result, the rates that most borrowers pay are now a quarter of a percentage point higher on five-year loans.

Rates are expected to continue to rise, so buyers and homeowners may need to act quickly to identify the best mortgage rate they can get.

Why are Canadian mortgage rates rising?

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Mortgage rates are being pushed up by the steadily rising yield, or interest rate, on five-year Canadian government bonds. Last year, that yield – which tends to dictate the pace of mortgage rates – fell to 0.32 percent. Recently it has been around triple that level.

Analysts say the higher bond yield reflects the growing optimism of investors, who are withdrawing money from relatively safe bonds and pouring it into stocks, which carry more risk. Weaker demand for bonds pushes bond prices down and yields higher.

As bond yields fluctuate with market conditions, further increases are not only possible, but likely, as more people are vaccinated and investors feel even more encouraged by the outlook for the economy.

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How Are Mortgage Rates Rising?

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Major banks, including TD Bank and National Bank of Canada, have raised rates on some mortgages, say Reuters. Rates would have increased by 15 to 25 basis points; a basis point is one hundredth of 1 percentage point.

Higher rates mean higher monthly mortgage payments.

Here’s an example of how it works: A typical $ 530,000 Canadian home buyer who made a 10% down payment might have recently taken out a five-year fixed rate mortgage at a low 1, 39%. Amortized over 25 years, the loan would have cost the borrower $ 1,941 per month.

But today, that buyer could land a loan 15 basis points higher: 1.54% instead of 1.39%. The mortgage payment would be $ 1,975, an increase of $ 34 per month or $ 408 per year.

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How the Bank of Canada is responding

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Mortgage rates and other interest rates across the economy were at an all-time low thanks to the Bank of Canada’s decision in late March 2020 to cut its benchmark rate to just 0, 25%, corresponding to a historic low.

As mortgage rates start to rise, borrowers can be reassured that the BoC has no plans to raise rates anytime soon.

Despite signs of “excessive exuberance” in the economy, particularly record real estate pricesBank of Canada Governor Tiff Macklem said the central bank was sticking to its plan to keep rates low until unemployment and other economic indicators recover from the effects of COVID -19.

“We need to watch things very closely, but I am not recommending new measures at this time,” Macklem said in late February in a remote speech to the Calgary and Edmonton Chambers of Commerce.

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Could be a good time to lock in a rate

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Even with the BoC’s insistence that it won’t be raising rates anytime soon, many observers believe mortgage rates in Canada look set to rise.

“The spike in interest rates would no doubt slow or reverse if we saw a third wave of new cases of COVID variants before the full rollout of vaccines in Canada,” said Sherry Cooper, chief economist at Dominion Lending Centers, in a recent report. .

But Cooper adds that “an ultimate interest rate hike cannot be far away,” given rising oil prices and government measures to stimulate the Canadian economy and others.

So if you are looking to buy a house, try to lock in a low rate now because you can keep it for up to 120 days.

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But first you will want check your credit score to make sure it’s strong enough to impress a lender. If not, you need to pay off some of your debt and take other steps to get your score up to where it belongs.

If you already own a home and are considering downsizing or swapping, be prepared to act quickly if you find a new home and a mortgage rate that you like. Convenient service can provide you with the most up-to-date valuation of your current home and even help you avoid some of the hassle of listing.

This article was created by Wise Publishing, Inc., which provides clear, reliable information people can use to take control of their finances. Millions of readers across North America rely on the Toronto-based company to help them save money, find the best bank accounts, get the best mortgage rates, and navigate many other financial matters.