Wednesday, November 16, 2016

President Elect Donald Trump effecting Canadian mortgages?

As the saying goes, "When the USA sneezes, Canada catches a cold..."  The election of Donald Trump is causing some wrinkles in the Canadian mortgage market....

Canada's banking watchdog, the Office of the Superintendent of Financial Institutions, has also imposed new rules that will require lenders to hold more capital against riskier mortgages. Combined with the other changes, financial institutions suddenly find it more expensive to lend against housing.

As the banks wrestle with these rules, bond yields have also started spiking. Since Donald Trump was elected president of the United States last Tuesday, the five-year Government of Canada bond yield, which is used as a benchmark for mortgages, jumped 21 basis points to 0.96 per cent.

The sudden spike affects banks because their mortgages earn a spread off of the five-year benchmark rate. Whenever their borrowing costs rise, they pass the increase along to customers who take out new loans.

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