TD Canada Trust increased its special 5-year closed residential rate 10 bps to 3.39 per cent on Wednesday – a discount off the posted rate. This was quickly followed by Scotia, which announced yesterday that it is also moving its 2-, 4-, 7- and 10-year fixed terms up 10 bps on June 22, with a 4-year mortgage now 3.09 per cent.

 

RBC is increasing by 20 bps to 3.29, 3.39 and 3.79 per cent respectively on Monday, with the 3-year closed rate going up 10 bps to 3.75 per cent.

 

B2B Bank and Laurentian announced increased rates last week, each moving posted numbers to 3.14 per cent on a one-year fixed closed.

 

Laurentian also posted 3.14 on the 2-year fixed rate, and 3.55 for a three-year fixed; whereas B2B now has 3.19 per cent on a 2-year closed, and 3.65 per cent on a 3-year closed.

 

Danny Andonovsky, a manager of business development, mortgages in the GTA for B2B, emphasizes that the special broker rates will still be there.

 

“These are posted rates, yes,” Andonovsky told MortgageBrokerNews.ca, “but we still offer lower rates to the mortgage brokers. That relationship hasn’t changed.”

 

The move reflects First National and MCAP’s rate increases, as the two popular alternative lenders raised the 5-year fixed rates to 3.09 per cent (although MCAP continues to offer 2.94 per cent on its quick close mortgage).

 

The general move upwards was spurred by RBC a few weeks ago, when the major bank decided to move rates above the 2.99 threshold. This followed BMO’s announcement back in the early spring that it was not renewing its special 2.99 offer – now presenting a 3.19 per cent on its Low Rate five-year mortgage.

 

 

“They’re realizing that competing on rate is a losing game, and want to see how the market will react,” says Paolo Di Petta, a broker with EQRON Mortgage. “The real story here is that RBC’s strategy seems to be more HELOC-focused now, anyway. They’ve been aggressively marketing their prime + 0.5 product for a while now.”

 

RBC – like TD Bank – was among the first of the major banks to raise fixed rates since bond prices took a nosedive last month. The biggest increase will be applied to RBC’s five-year closed mortgage, which will rise from 3.09 to 3.29 per cent.

 

BMO, which has historically led the charge in lowering the rate is now proffering a more-modest 3.09 per cent on a five-year fixed.

 

But for Di Petta, it is a simple numbers game for RBC, and home equity lines of credit are the best weapon the big bank has to wield right now.

 

“HELOCs are a better sell for them – less maintenance, no renewals – they essentially cut the labour cost and broker competition out of the picture,” he told MortgageBrokerNews.ca. “And if there’s equity in the HELOC – it’s easier to hide delinquencies/defaults when borrowers can borrow to make their monthly interest payment.”

 

The one-year closed mortgage has increased 0.14 of a percentage point to 3.14 percent, with increases of one-tenth of a point on two-, three- and four-year mortgages.

 

Funding costs, which are tied largely to the rate on five-year bonds, have increased. As the banks use the bond market to fund their commercial lending activities, other lenders are expected to follow Royal Bank’s lead.

 

Kerri Lynn McAllister, the chief marketing officer at RateHub, suggests some lenders may continue to opt for volume over margins in the face of an overall slowing mortgage market.

 

“We are not surprised RBC raised their mortgage rates on the heels of a recent spike in bond yields – this follows the historical trend,” says McAllister. “However, we cannot assert all other lenders will follow, given that overall mortgage volumes are slowing in Canada. Some lenders may choose to sacrifice margin for volume. We will see how it plays out.”

 

But for Di Petta, the HELOCs – along with the new hybrid products already offered by the big banks – will allow lenders like RBC greater control over a client while limiting the exposure.

 

“Traditional mortgage products aren’t going away any time soon, but I ‘m expecting banks to continue pushing HELOC and hybrid (all-in-one) products,” he says, “especially since collateral charges give them much more control over the client, and gives the banks more opportunities to limit their exposure.”

 

The rate hike must come as a relief to Finance Minister Jim Flaherty, who appeared to chastise BMO for lowering its posted five-year to 2.99 per cent back in March, and going so far as to have his department contact Manulife when that lender lowered the rate to 2.89 per cent.

 

Still, brokers stand to benefit from the rate hikes at the big banks, say brokers, but only for as long as monolines can keep from following those large institutions.

 

Omer Quenneville loves to tell the story of the two clients who bought identical condos in the same building – and especially loves to remind the client who didn’t listen just how wrong he was.

 

“Do I love saying ‘I told you so’?  Of course I do!” laughs the Toronto Centum broker, who wants brokers to understand that you will never lose a client if you build a relationship based on education – and not on just rate. “That is the first mistake if you make it all about rate – the client should understand that they are selling their soul if their decision is based on one-tenth of one percent.”

 

Quenneville’s cautionary tale involves two clients who were interested in condos in the same building – one on the sixth floor and one on the seventh.

 

“It was three years ago, and they both had me as their agent,” he told MortgageBrokerNews.ca. “I explained that with a variable mortgage you have more options with only a few basis points difference, and who cares if the rate goes up because there will not be any penalties involved compared to a fixed.

 

“Well, the one client listened and the other didn’t (both had loans from the same bank). Fast forward to 2013, and they each want out of their mortgages two years early. Well, the client who listened to me only had to pay a small discharge penalty and went on to use his equity to buy two more condos in the U.S. The other,” Quenneville chuckles, “would have ended up paying between $13,000 in penalties. So instead he’s had to stick it out for another year and a half in his condo. And yes, I said ‘I told you so!’”

 

Angela Calla, a broker with Dominion Lending Services and host of The Mortgage Show, agrees that there will always be clients who want to listen and learn, and those who will always want to go their own way.

 

“Communication is the most important thing in this business,” says Calla. “When the clients aren’t communicating, you are going to lose them. Some will want to do it themselves, and to those we wish them the best of luck – they will live and learn. Others will do their researching on the web, using rate sites, but will also want to understand the business.”

 

She, like Quenneville, finds the best broker advocates are those who have been burned by making a bad deal in the past.

 

“First-time homebuyers are usually fixated on the rate, and it is difficult to explain to them the benefits of variable, fixed and penalties,” she says. “But those who have been burned in the past? They are our best advocates. No one sings our praises louder than the client who has paid out a big penalty to get out of a fixed mortgage early.”

 

But Calla won’t say “I told you so.”

 

“Let’s move forward, let’s not make the same mistake again,” is what Calla tells her clients who have been burned in the past. “But not ‘I told you so.’”

 

Like Calla, Quenneville stresses the need to educate and take the time with clients to explain all the options available, and what is in their best interest; but he does admonish brokers for being too volume-focused.

 

“If you don’t take the time with a client, if you are more about volume than quality, then you will get burned by that client down the road,” he says. “The volume takes care of itself when you take care of the client.”