TD Bank raises mortgage prime rate to 2.85%

Toronto Dominion Bank has become the first major lender to hike its mortgage rates after Ottawa's move last month to change some of the rules that govern insured mortgages.

The bank's mortgage prime rate is rising 0.15 points to 2.85 per cent, effective immediately, after it had remained steady for 15 months.

Only customers with variable rate mortgages will be affected, the bank said in a statement, while fixed-rate customers should see no change. Other products such as lines of credit are not affected.

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"We regularly review our rates and adjust them based on a number of factors, including the cost that TD pays to fund mortgages," the bank said. "Increasing our rates is not a decision we take lightly. We consider the impact on our customers before proceeding with any rate change, and we communicate directly with customers whose loans or mortgages are affected."

It's rare for the big banks to leave much gap between themselves on their prime lending rates, so other major lenders are expected to follow suit. CBC News has reached out to Royal, CIBC, Scotiabank and BMO for comment, but none was immediately available.

James Laird, a co-founder of rate-comparing website RateHub and president of mortgage brokerage Canwise Financial, says he can't recall the last time a major bank moved its prime lending rate out of step with the Bank of Canada, which has been on the sidelines for all of this year and is next scheduled to meet next month.

"That being said, there's been some very major changes to the mortgage industry," he said in an interview. "This could be in anticipation of higher funding costs when the new rules come in."

In addition to a new stress test for borrowers, Ottawa also implemented new rules set to kick in at the end of this month that will make many types of mortgages ineligible for bulk insurance — which is one of the cheapest ways for lenders to insure their loans.

That means in less than a month, many lenders won't be able to cut their costs by packaging their mortgages together and selling them to investors. That will raise the cost of mortgages everywhere, especially for non-bank lenders.

So TD moving to raise their mortgage rates could be a way of getting out ahead of those changes, Laird said.

"Without being able to ensure those mortgages," Laird said "we can point to that as a likely reason for today's news."