From the Ottawa Citizen
Thankfully at least one media outlet is trying to clarify the confusion caused by the increase in fixed interest rates. With headlines like “Era of low interest rates come to an end,” the media has completely misguided Canadians. The fact is that the Bank of Canada rate has remain unchanged. In fact, there is a good chance we will see those same fixed rates that went up last week, hedge back down slightly as banks try to compete for market share.
What I find interesting is that the competition bureau is going after the thousands of real estate brokerages for collusion, yet two banks last week colluded in a drastic increase in interest rates after sitting of their heels for the past three weeks when interest rates should have been rising gradually. It seems as though the competition commissioner has a hard on for realtors, perhaps because of her own personal experience, but is willing to turn a blind eye to the government regulated banks.
See the explanation of last weeks interest rate moves below.
The rise in mortgage rates at three of the big banks comes at a time when the Bank of Canada’s benchmark lending rates have remained unchanged since early 2009.
The Bank of Canada’s “overnight rate,” the rate at which Canada’s banks can make short-term loans to one another, was set at .25 per cent in March of 2009.
The Canadian Bankers Association said many consumers are confused by the relationship between the central bank and commercial banks. The Bank of Canada’s rates have very little to do with mortgage rates, the association says.
Mortgage rates are based on a number of variables. Banks must balance the amount they charge in interest with the amount they pay on consumer savings accounts. As the price paid on account interest rises, mortgage rates will also rise.
Banks also use other investments as yardsticks for mortgage rates. If a secure investment, such as a Canada Savings Bond, is paying three per cent annually, an investment such as a mortgage must be priced higher to cover for the risks involved and to ensure that the bank makes a profit.
