The beginning of the end?

Royal Bank raises mortgage rates on both fixed and variable types


By The Canadian Press


TORONTO - Royal Bank (TSX:RY.TO - News) is raising its posted fixed and variable mortgage rates, of between 10

and 50 basis points in a sign the era of ultra low borrowing could be drawing to a close.


The Toronto-based lender said its posted five-year closed mortgage rates will move up 20 basis points to 5.44 per

cent effective Mar. 29, while bank's special fixed rate offer on a four-year fixed rate will add 50 basis points to 3.49.


Meanwhile, the posted five-year variable rate — which rises or falls along with the bank's prime lending rate — will

rise 10 basis points to prime plus 0.20 percentage points.


The prime rate, which usually moves with the Bank of Canada's key interest rate, is currently three per cent.


The moves come after a recent race to the bottom that recently saw Royal and others push their special offer fixed

rate down to 2.99 per cent.


Although variable rates usually follow the lead of the Bank of Canada, longer-term rates are more influenced by

bonds. Higher bond yields increase the cost of funds for lenders, who in turn pass them on to customers.


Government of Canada five-year bond yields have jumped more than 50 basis points in the past three months



The other banks could soon follow RBC's move in raising rates as the big five Canadian banks often move in



In a BMO report Friday, its economists argued that with the U.S. recovering gathering steam, central bankers on

both sides of the border are becoming more comfortable with the economy and less so with historically low

interest rates that in Canada are fanning the flames of the hot housing market.


Both Finance Minister Jim Flaherty and Bank of Governor Mark Carney have recently flagged household debt at a

danger to the economy.


Household debt to disposable annual income is above 150 per cent.


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