Canada’s largest banks raise interest rates to 3.2% after central bank raises

© . FILE PHOTO: The Royal Bank of Canada (RBC) logo is seen outside a branch in Canada’s Ottawa, Ontario, Feb. 14, 2019. REUTERS/Chris Wattie By Nichola Saminather TORONTO () -Canada’s largest banks said on Wednesday they would are raising their primary lending rates by 50 basis points to 3.2%, a two-year high, following the Bank of Canada’s benchmark rate hikes, moves that could curb the country’s red-hot housing markets. The country’s four largest banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Bank of Montreal – said the higher prime rate, which includes floating-rate mortgages, will take effect Thursday. Floating rate mortgages have grown in popularity as the gap between these and fixed rate mortgages has widened in recent months. They accounted for 55% of all mortgages, according to data from the Bank of Canada -and -existing-loans-by-chartered-banks/#download. The central bank raised its overnight interest rate by half a percentage point to 1% on Wednesday, the largest step in more than two decades, and said more rate hikes are on the way. “Canadians with variable rate mortgages and home equity lines of credit (HELOCs) will feel an immediate impact,” James Laird, co-founder of the mortgage rate comparison site,, said in an emailed statement. The moves follow the 25 basis point rise in the prime rate last month. Canada’s scorching housing markets, a source of growing concern for regulators and authorities, are already beginning to see some slowdown in price growth due to affordability issues and pending rate hikes. In addition to bond yields, fixed mortgage rates have already risen and are now close to 4% at Canada’s largest banks. This means that the bottom of Canada’s stress test for mortgages, which raised the qualifying rate at 5.25% or 200 basis points above the rate the borrower pays, has already shifted to the latter for these loans. A 1 percentage point increase in the stress test reduces affordability by about 10%, Laird said.

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