TD raises posted 5-year fixed mortgage rate to 5.59%

Toronto Dominion Bank has raised its posted rate for five-year fixed mortgages by 0.45 of a percentage point to 5.59 per cent.

The posted rate is the rate Canada’s big banks advertise publicly. The banks, however, often offer their preferred customers rates that are heavily discounted compared to their posted rates. The typical five-year fixed mortgage rate offered by the banks currently stands at 3.39 per cent, according to rates-comparison site RateSpy.com.

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Still, posted rates from Canada’s big six banks are used to calculate the qualifying rate that federally regulated lenders must use when stress-testing mortgage applicants.

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If two more of the big banks follow TD’s lead, the qualifying rate would climb “enough to shave off about 3 per cent from a typical borrower’s buying power,” Rob McLister, a mortgage planner at intelliMortgage.com and founder of RateSpy.com, wrote in a blog post on April 25.

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A higher qualifying rate, in turn, could put more downward pressure on home prices and force more Canadians to renew their mortgage with their current lender, which would allow them to avoid the stress test, McLister wrote.

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TD’s move reflects rising yields on government bonds, which have climbed to their highest level since 2011. Yields are the return investors realize on bonds. And the big banks use the yield on government of Canada bonds as a reference for how much it’s going to cost them to borrow. Banks must be able to borrow at lower rates than they charge when lending to clients, so when borrowing costs rise for the banks, they often pass those costs on to consumers.

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TD is the first of the big banks to have raised rates since January, and the adjustment was unusually large, according to McLister.

“Over the last decade, the average increase to posted 5-year fixed rates has been [0.24 of a percentage point]. A … bump [of 0.45 of a percentage point] is rare, and the most in eight years,” McLister wrote.