Royal Bank is boosting its mortgage rates by a quarter of a point effective Wednesday, marking the second time rates on home loans have risen in the last month.
Canada’s largest bank (TSX:RY) said Tuesday all of its fixed-rate closed mortgages will move higher, from a six-month convertible to 10 years. The new rates are effective Wednesday.
The announcement marks the second mortgage rate increase from the banking industry in recent weeks, as the cost of borrowing rises in the bond market.
Banks finance their mortgage loans by issuing bonds in financial markets. However, the banks have been forced to pay higher rates on those bonds as investors demand stronger returns in exchange for parting with their money, fearing that the world’s central banks will soon begin raising interest rates as the global economy recovers from recession.
Canada’s other banks will likely follow the Royal Bank, providing another sign that the recent talk of higher rates is becoming reality for Canadian borrowers.
The Bank of Canada is expected to begin raising its key lending rates this summer, which tend to have more influence on short-term lending rates, lines of credit and variable-rate mortgages.
Mortgage rates could rise by up to a full point by the end of the year, which could dampen what has become an overheated housing market in many parts of Canada.