Credit Crunch Fallout Raises Mortgage Rates

As reported in today's Toronto Star, Canadians received more proof yesterday of the global credit crunch hitting home after this country's biggest banks began hiking their residential mortgage rates in an effort to recoup higher funding costs from their customers.

The interest rate increases follow days of forewarning by financial experts, who predicted Canadians would feel the pinch of the financial crisis through higher borrowing costs on consumer loans.

TD Canada Trust was the first of the big domestic lenders to increase mortgage rates both on its' fixed rate mortgage product and its' variable interest rate mortgage. TD Canada Trust claims that the increase now is reflective because the bank has been holding on, that all of the industry in fact has been holding on, trying not to pass the increased costs to the customers, but says that it can't do this anymore.

Banks are grappling with higher funding costs in the wake of last year's subprime mortgage market meltdown in the United States. With the ensuing global credit crunch now in its second year, banks remain wary of lending to each other. The bank says that all mortgages, variable rates mortgages in particular, have become money losers because of the cost of funds due to all the challenges that are going on in the world right now.

Another factor affecting rates is the bond market which has been in a flux ever since the United States announced a $700 billion US bailout plan for American banks. The interest rates on mortgages and other short-term borrowing are set based on the price of bonds. With lower demand for bonds, and fears of inflation, rates have to rise to lure investors.

Warmly,

Mary Wozny