Is There Less Competition Among Canadian Banks Fixed Rate Mortgages?

Canada finds itself in a newly competitive arena, not on a hockey rink, but in the mortgage lending-sphere.

For the last few months, mortgage rates have been a hot topic especially for Jim Flaherty, the Finance Minister of Canada; banks were bringing their rates low, lower than they've been in a significant number of years. Lenders went as far as to take them under the three percent line, which caused Flaherty to have some words about the potential "race to the bottom."

But now, as the demand for government bonds from investors have increased, as have the rates of fixed mortgages.

In any industry there are precedents that are followed, banking is of no difference. Canadian homebuyers are now in the midst of an upswing of fixed Mortgage rates.

On July 15, Canada's biggest provider of mortgages, the Royal Bank led the charge and was the first to increase their rates. RBC saw an increase to %3.29, a 20 basis point jump.

Following RBC's step forward Laurentian Bank and TD Canada Trust did the same and increased their rates.

The increases could deter Canadians from accumulating more debt than needed, while making mortgages harder to obtain. The idea is to motivate people to place greater down payments.

So Canadians must accept it, rates are going up. But why is this?

The belief that there is decrease in quantitative easing measures by the United States' Federal Reserve, otherwise "greasing the economy" by buying the government bonds.

Basically, meaning the prices of bonds in the past, like gasoline for automobiles are in the past.

With markets doing the majority of trading together, the philosophy is low prices bring a higher number of yields.

Now, a lower number of yields represent a higher demand. The investment in Canada's economy with lower yields is less of a risk as well. As a result Canadian banks profit.

Their profit comes in the form of cheaper liquid funds and added stability.

How does this impact the people?

Lower rates for those who borrow as a result of savings being passed down to them.

On the contrary however, there can be a jam of credit that banks share when there is not a high demand of interest from investors. And how is the jam alleviated, this is where we get back to square one, increased rates. The jump of rate prices is geared to make up for the borrowing price.

Currently the absolute lowest five year fixed rate offered is %2.74, which makes the dramatic precedent set by RBC to go up to %3.29, more competitive as other lenders are following suit. Rates are increasing but these are credited to regular factors in an economy.

It is not until 2014 where markets expect the Bank of Canada to adjust their rate of lending. The current economic conditions and climate have not properly readjusted to make it most productive for the alteration of borrowing costs.

Even with the competition, right now is still a good time for Canadians to "lock-in"

at 6:00 PM
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