Canadian banks raise prime rate to 3.45% after Bank of Canada hike

Canadian banks raise prime lending rate to 3.45%

Bank of Canada raised rate to 1.25%

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TORONTO — Canada’s biggest banks will hike their prime rate by a quarter of a percentage point on Thursday, putting financial pressure on homeowners with variable rate mortgages.

The Royal Bank of Canada (TSX:RY) was first to announce its prime rate will rise to 3.45 per cent, shortly after the Bank of Canada raised its key short-term rate by a quarter-point to 1.25 per cent.

RBC was followed by Bank of Montreal (TSX:BMO), CIBC (TSX:CM), Scotiabank (TSX:BNS), TD Canada Trust (TSX:TD), National Bank (TSX:NA) and Desjardins Group — a financial co-operative with offices throughout Quebec and parts of Ontario.

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Banks tend to raise their own prime rates after the central bank raises its key lending rate, which affects wholesale borrowing costs for the major lenders and the retail borrowing rates they charge consumers.

The prime rate is used as a benchmark for variable-rate mortgages and some lines of credit.

Consumers with a fixed-rate mortgage will be unaffected by the Bank of Canada’s move on Wednesday until it’s time for the borrower to renew the mortgage.

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The major banks recently raised some of their fixed-rate mortgage rates to reflect their costs of borrowing on bond markets, which have more effect on longer-term mortgage rates than does the Bank of Canada’s overnight rate.

As of Wednesday, several banks had posted five-year fixed-rate mortgages at 5.14 per cent — although lenders will often charge less than the posted rates. Posted fixed rates were lower for mortgages with shorter terms.