Yahoo Finance Royal Bank and TD raise prime rates after Bank of Canada hike
Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO) are raising their prime interest rates after the Bank of Canada announced it is raising its benchmark interest rate for the first time since 2018.
The 25 basis-point increase by Canada's largest bank by market cap mirrors the Bank of Canada's hike, taking RBC's prime rate from 2.45 to 2.70 per cent. Shortly after RBC's move, TD Bank also raised its prime rate by 25 basis points to 2.70 per cent.
Canada's central bank raised its key rate to 0.50 per cent to fight inflation, which at 5.1 per cent is at the highest level since 1991.
Increases to the overnight rate trickle down to variable-rate mortgages but won't directly affect fixed-rate mortgages.
LowestRates.ca crunched the numbers using its mortgage calculator and found a $720,000 home with 10 per cent down over 25 years paid around $2,587 a month on a 1.2 per cent variable mortgage.
The same mortgage with a 25 basis-point increase would be around $2,664, which is $77 more a month or $924 a year.
But borrowers should brace for even higher payments in the coming months as the Bank of Canada warns that further hikes are coming.
"As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further," said the Bank of Canada in a release.
Variable-rate mortgages have surged in popularity of late as the interest rate gap with fixed mortgages widened.
Monthly mortgage payments on the same home with a five-year fixed rate of 2.59 per cent would be around $3,033.
The rate changes at RBC and TD each take effect on March 3.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
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