Is now the time to lock in a fixed rate mortgage?

Moves by two of Canada’s largest banks to raise fixed residential mortgage rates suggest it may be a good time to lock in payments ahead of an expected hike in the overnight lending rate by the Bank of Canada, financial advisors say.

The Royal Bank of Canada and TD Canada Trust announced Monday that rates for fixed mortgages are going up by between 20 and 60 basis points on three to five-year plans.

Judith Cane is a board member at Advocis, the Financial Advisors Association of Canada. She said the hikes will have considerable impact, especially at the start of the spring home buying season.

“I was surprised to see them go up 60 basis points,” she said. “That’s quite a lot.”

A three-year closed mortgage at RBC now comes with 4.35% interest, a four-year comes in at 5.34% and a five-year closed at 5.85%. Over at TD, a standard three-year fixed mortgage is 4.70%, a four-year is 5.34% and a five-year is 5.85%. The changes are effective Tuesday. The banks are also offering special four and five-year discounted rates for a limited time. In Quebec, Laurentian Bank similarly upped its rates. Other lenders are expected to follow suit.

Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals, said Monday’s rate moves reflect a strong bond market.

“Rates may be rising but they are still very low, historically speaking,” Murphy said.

The majority of Canadian mortgage holders currently have five-year fixed plans, so the raises won’t have any impact on them at the moment, he said.

“Clearly, variable rate holders will see their payments go up.”

Banks typically update their five-year fixed rates before revisiting variable and mixed rate plans. Cane spoke to QMI just after advising her own client to lock into a fixed rate.

“I can’t see any movement back down anytime soon,” she said.

Higher rates means some homeowners could face a heavier debt load than they can handle.

“The big concern for me is variable rate holders who aren’t financially solid,” Cane said. A mere 60 basis point jump on a five-year plan could mean payments of an extra $1000 per year on a $250,000 mortgage.

Murphy said CAAMP research shows that most households can manage an up to 3% increase in variable rates.

Canada’s central bank has pledged to keep interest rates at historic lows until at least the second half of this year, if inflation allows. But the core price index has risen faster-than-expected, barreling ahead 2.1% over the 12 months to February, following a 2.0% rise in January. Economists had expected the core rate to ease to 1.7%.

In a speech last Wednesday, BoC Governor Mark Carney hinted interest rates may rise sooner than planned as a result.

The bank’s next quarterly report is on April 22, he said.