Will TD Bank be just the only lender to hike its interest rates?
Do expect further interruption to the industry that will make mortgages more expensive for the consumer.
Why? Read below.
Under current rules, the federal government covers 100 per cent of Canada Mortgage and Housing Corp.'s obligations to lenders for insured loan losses. Additionally, Ottawa covers up 90 per cent of the obligations to lenders of the private mortgage insurance providers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company.
The government says that as the Canadian residential mortgage market has grown, so too has the portion that is insured with government-backing. Insured mortgages represent an estimated 56 per cent of the total outstanding residential mortgage credit, and mortgage insurance is used by all types of lenders to insure about 40 per cent of new mortgages.
Ottawa says that under risk sharing, lenders' exposure to loan losses should rise, increasing their expected losses and pushing up their requirements to hold more capital. Conversely, mortgage insurers could see lower losses, resulting in lower total capital requirements for them.
So, Federal Finance Minister Bill Morneau and the government-owned mortgage insurer, Canada Mortgage & Housing Corp. (CMHC) are pushing up their requirements to lenders to hold more capital for residential mortgages to protect against defaults. All these capital requirements require rate increase!
You may ask again: Why?
The answer is simple.
Raising rates is a natural reaction to the recent changes. The lenders will be passing the expense onto customers!
TD Bank was the first lender to hike its rates in response to last month’s mortgage rules changes.
The bank announced in a note to brokers last Tuesday that it is changing its mortgage rates, including increasing its mortgage prime rate to 2.85%.
The other banks might follow suit.
Starting in January, banks are going to be required to assign more capital to mortgages. All these banks are going to be pushed in some sort of direction to raise rates because of these capital requirements on the hot marketplaces.
This is the result of the government’s moves. The government is increasing capital requirements in different layers and different levels of the mortgage business. And by doing so, they push banks to raise rates. Every business passes government regulation change onto the consumer. TD is doing this because they feel they have to; there is a logical reason behind it based on capital requirements and other banks may change or may not.
Are you looking to buy a property? If you like, I can tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much I could save you right now if you have an existing mortgage.
Until next time,
Your mortgage expert Evgeny Kamenskiy