One of the country’s largest banks has moved a key prime rate up 15 basis points for variable-rate mortgage customers, a change that will affect some Canadians with floating rate products.
Toronto-Dominion Bank began quietly telling the lending industry on Monday that its prime lending rate was going to jump from 2.7 per cent to 2.85 per cent on Tuesday for one segment of its business — a move that coincides with new federal mortgages rules that many have said will cost the banks money and ultimately be passed on to consumers.
“This will impact customers who hold a variable interest rate mortgage,” said a TD spokesperson in an email. “There is no impact for our customers who hold fixed-rate mortgages. At TD, we have two prime rates: TD Mortgage Prime is the base rate for variable interest rate mortgages and TD Prime is the base rate for other products with a variable interest rate, like FlexLine and lines of credit.”
The increase applies only to the TD Mortgage Prime rate. The TD Mortgage Prime rate has been offered for more than a decade and this is the first time the bank has differentiated its prime rates.
Ottawa moved last month to tighten mortgage rules with one of the key changes being that consumers with fixed-rate mortgages of five years or longer backed by the government must qualify based on the posted rate, now 4.64 per cent. Many have suggested that rule will slow sales and ultimately impact the revenue of the major banks. Only TD has changed its rates.
The change by the bank will immediately impact customers with variable-rate mortgage products, effective Nov. 1. Most variable rate products are discounted from the prime rate, but the discount remains constant, meaning those customers will start paying more interest and less principle on their loans even though their monthly payment stays the same.
“They are doing this in anticipation of the mortgage rules causing more expensive mortgage financing in Canada,” said James Laird, a founder of ratehub.ca
There is no change to the overall TD Prime rate, but the move comes despite the Bank of Canada holding its overnight lending rate steady on Oct. 19. Variable-rate customers tied to prime have generally seen their mortgages track the Bank of Canada rate, though two recent moves saw the major banks pass on only part of cut.
“I can’t remember a bank moving not at the same time of the Bank of Canada announcement,” said Laird, noting that in the past TD reacted after a Bank of Canada move. The next Bank of Canada meeting on rates is not until Dec. 7. “I’m wondering whether they’re expecting a rate cut and this is in anticipation of another prime rate cut on the horizon.”
Consumers with variable rate mortgages can exit their mortgage with a penalty of three months interest, but the key will be whether some of the other banks match the TD hike, making changing lenders pointless.
“This affects every TD customer who has a variable-rate mortgage,” Laird said. “The millions and millions of Canadian consumers with rates related to prime with TD, their interest rates just went up.”
Rob McLister, the founder of ratespy.com, blamed the hike on the federal government’s new rules.
“This is a stealth interest rate hike by the department of finance,” he said.
McLister doesn’t think TD’s rate hike, even if matched by other providers, will have a significant impact on the market given that about two-thirds of the market is locked into fixed-rate products.
“A 15 basis point jump upsets a lot of people, but it doesn’t have much of an impact on the price of homes,” said McLister, adding that some non-bank fixed rate products for five year terms are now below two per cent — something which could drive consumers away from variable rate products.