Last week, the Bank of Canada increased their overnight rate by 1/4 percent which represented the first increase in almost 7 years.  Usually what happens when an adjustment to the overnight rate is made, the big banks will then match the movement.  The last two times the overnight rate decreased however, they did not match the full decrease and only dropped their prime rate by 0.15%.

Now that the prime has increased, the banks wasted no time in matching the full increase of 0.25% by increasing prime rate to 2.95%.  The non-bank lenders then follow the big banks. I would have been pretty surprised if the big banks did not match the full increase.  If they have an opportunity to make more money, they will certainly take it… and that they have.

In typical mortgage market, these Bank of Canada rate adjustments do not affect fixed rates.  However, given that this is the first increase we have had since September 2010, the news sent bond yields soaring (the determining factor of fixed mortgage rates).    When bond yields rise, so do fixed rates.

Most lenders are now above 3% on 5 year fixed mortgages with rates ranging from 3.09% to 3.19%.  This represents a whopping 0.35% increase over where 5 year fixed rates were just last week.

There are however still some lenders with 5 year fixed rates as low as 2.64%, however it will be interesting to see how long these rates will last.

Personally, I think the amount of increase is excessive and not in line with the increase to bond yields, however mortgage pricing can be complex.  I think this was just a reaction to the increase in prime and I feel that we’ll start to see fixed rates settle back down again.  Time will tell.

It is predicted that there will be another increase to prime rate potentially by the end of the year, and then possibly another increase early next year.  This is of course all speculation and I would be surprised if this came to fruition.

You can follow the bond yields yourself here:  https://www.investing.com/rates-bonds/canada-5-year-bond-yield