The Big 5 Banks Raise Prime Rate to 2.70%

The Big 5 banks have raised their prime rate by 25 basis points, affecting variable mortgages, lines of credit and home equity lines of credit. Dan Pultr, Senior Vice President, Strategic Initiatives at TMG The Mortgage Group, estimates that every 0.25% increase in prime rate translates into approximately $12-$13 of additional monthly interest cost per $100,000 of debt, based on a 25-year amortization. Most analysts are expecting between three and four additional quarter-point rate hikes this year, while bond markets continue to price in five more hikes in 2022. With a record number of new homebuyers choosing a variable rate, some may be concerned about the prospects of higher monthly payments. However, converting from a variable rate to a fixed is not an option for most borrowers, as conversion rates typically stink and fixed rates have been trending higher since the second half of last year.

However, for the small percentage of borrowers who aren't able to absorb any kind of rate increase, they may lock in to a 3- or 4-year fixed rate to ride out the initial part of the rate-hike cycle and then hope that things slow down with rates three or four years from now. Based on feedback from lenders, at least one in 20 variable-rate borrowers convert to a fixed rate when prime rate starts to rise.