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RBC Unexpectedly Lifts Fixed Mortgage Rates

Trend-setter Royal Bank boosted a bunch of rates this week...

May 5, 2021
5 mins
The view looking up at a RBC bank building in the city
  • RBC Hikes Rates Out of the Blue: Trend-setter Royal Bank lifted several mortgage rates this week, despite no apparent funding cost pressures.
    • The following "special" fixed rates all increased:
      • 1yr: 2.44% to 2.64%
      • 2yr: 2.09% to 2.29%
      • 3yr: 2.24% to 2.44%
      • 4yr: 2.39% to 2.59%
      • 5yr: 2.49% to 2.69% (RBC's highest since last June)
      • 7yr: 3.19% to 3.39%
    • The bank even raised its advertised "special offer" variable rate, bucking a 9-month-long industry-wide trend of falling variable rates:
      • 5yr variable: 1.60% to 1.80% (prime rate - 0.65%)
    • One or more banks could always follow RBC's revenue-enhancing gambit, but it's unlikely to trigger another leg-up in rates overall — at least not until bond yields start climbing again.
    • Meanwhile, there are still multiple other lenders at or below 2% on 5-year fixed and shorter-terms. RATESDOTCA's Mortgage Matrix has a quick view of them all.
  • CMHC's Epic Decline: How the once-mighty have fallen. For the first time ever, Canada's housing agency (CMHC) is no longer the leading seller of mortgage-default insurance, as of its latest report. CMHC's market share (of new premiums written) reportedly fell to approximately 29% in the fourth quarter, based on analyst estimates. It seems like just yesterday that Canada's original default insurer commanded over 70% of the market.
    CMHC's 29% slice of the market is now:
    • far behind the new leader, Sagen, which now commands roughly 43% of the market
    • below the 40% its former CEO claimed was needed to "protect the mortgage market in times of crisis”
    • below the 30% floor that represents CMHC's minimum comfort level, according to what a CMHC official told me earlier this year
    • just one point ahead of third-place Canada Guaranty.

      CMHC said in its recently released annual report that "changes in [its] mortgage insurance market share" are, in part, creating a "high" level of strategic risk for the agency.

      It didn't have to be this way. In July, CMHC unilaterally decided to make its qualifying rules too strict versus competitors. That was despite already conservative underwriting and minimal default risk relative to its capital position. Then in August, its former CEO essentially browbeat the industry for supporting those competitors, thereby alienating lenders and mortgage originators. Meanwhile, private insurers Sagen and Canada Guaranty were more than happy to keep serving consumers with prudent, flexible insurance options. CMHC's overly restrictive debt ratio limits held it back significantly in Q4-2020 and Q1-2021 as home prices went vertical. The higher prices go, the more debt ratio flexibility insured borrowers require.
  • Hikes on the Horizon: BAX futures, which traders use to bet on interest rate direction, are implying at least two Bank of Canada rate hikes by the end of next year.
  • Inflation Alert: The year-over-year rise in commodity prices hasn't been this large in 40 years (since the early 1980s). Economists attribute it largely to "base effects" (i.e., unusually low values a year ago at the pandemic's peak). But that doesn't tell the whole story, because the six and three-month changes are also elevated, says Bloomberg's Cameron Crise. Other things equal, inflation scares will support higher bond yields. The question is, how soon?
Rob McLister

Rob McLister has been informing mortgage consumers and professionals since 2007. In that time, he’s written more than 2,500 mortgage stories for publications ranging from the Globe and Mail — where he presently serves as mortgage columnist — to the National Post, Maclean’s, Canadian Mortgage Trends and Regularly quoted throughout the media, Rob is a committed advocate of greater transparency in the mortgage industry. He’s also been a vocal consumer advocate for more sensible mortgage regulation. In 2011, he launched two mortgage fintechs: mortgage comparison website and digital mortgage broker intelliMortgage Inc. The former is the go-to source of Canadian mortgage news and the only site comparing all publicly advertised prime mortgage rates. The latter is Canada's leading online mortgage provider for self-directed borrowers. Both companies were acquired in 2019 by RATESDOTCA Group Ltd.

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