Higher Bond yields are bringing higher fixed rates..but that’s not all.

Some of Canada’s major banks have raised their 5 year fixed mortgage rates… but not their posted rates.   It’s become common practice for the Big Six Retail banks to show a posted 5 year fixed rate ….but in the past few years the Banks have also started to advertise their so-called ‘special’ rate.

The ‘special’ rate has increased by 0.25% to 4.19% to 4.29%, depending on which Bank you visit.  Of course, these rates are still much higher than the true discounted rates available through Mortgage Brokers.   Wholesale 5 year fixed rates are still around 3.69% to 3.79% (these will probably go up in a few days by 0.25%).  But this is nothing new.

What’s different this time is that the Posted Rates didn’t go up.  We’re not sure why, but here is one definite result of this move…your mortgage prepayment penalty will not decrease, which is the usual effect of an interest rate hike.   That’s right, if you have a closed fixed rate mortgage to payout, your penalty is either 3 months interest or Interest Rate Differential (IRD).

IRD is calculated many different ways now and we are hoping the Federal Govt’s announcement of a standardized prepayment penalty will come soon (we hear it could come this spring).   Currently, Banks use formulas that include the Posted rate to calculate your penalty.  This calculation has become a lucrative source of revenue for the Banks.  Reports of 6, 10 and even 14 months worth of interest have been charged to unsuspecting borrowers.  Record low rates means record HIGH penalties.  Come on Federal Govt, we need this change now.

As an aside, Variable rates are still around 2.25%…. this larger gap between fixed and variable is going to make Variable more attractive.