Over the weekend I came across an interesting article on Moneyville, which explained that line of credit interest rates would be rising.
Ellen explained that TD Canada Trust is raising interest rates on personal line of credits that are not secured by collateral. A TD customer, Ed explained to her that his line of credit rate was going up to 7.35% from 4.25%; the most shocking part of this interest rate increase was the fact that not once was there a late payment.
From what I read and understand, Ed did not make a mistake, and by mistake I mean miss a payment or pay late.
Why would their have been an increase on the line of credit interest rate?
TD explained that the adjustments were intended to ensure that a risk based approach that evaluates factors, which includes both a customer’s credit situation and their relationship with TD.
Ellen’s understanding of the comment was that if you were to have more high value products, then you would receive a better interest rate.
I understood the comment as it was said, your interest rate is given according to your credit situation and relationship with TD. That being said, I do not understand why Ed, or anyone else who is in good standing with TD see a rate increase. If anything, a decrease would make more sense to reward clients with upholding their agreement.
What could happen to my interest rate?
TD clients who hold a unsecured line of credit are probably getting notices at this time, and of that group 60% will see their interest rate go up and 40% will see a decerase.
The increase will range anywhere from 0.5% – 3.75% above their current rates and the decreases will range from 0.5% – 3.00%.
This rate change will go into effect April 2nd, 2012.
Are any other banks making changes to their line of credit?
Canadian Imperial Bank of Commerce (CIBC) will be adding a $260 discharge fee for loans and lines of credit that are secured by real estate.
The only silver lining to this increase in this discharge fee is the fact that it will not take effect until April 1st, which means if you are interested in leaving CIBC, whether it is because you found a better product elsewhere or you want to avoid the increased discharge fee altogether, now might be the time to get out.
That being said, CIBC is not the only bank that is increasing their discharge fees for products; we here at BankNerd have heard of a rumour that Royal Bank of Canada (RBC) will be increasing their mortgage discharge fee to $250 (from $200). If this change does happen it is expect to happen as of June 1st, 2012. On a side note, RBC might be planning on increasing bank account fees, but this is another rumour we have been hearing on our end. If we hear any more information on this we will be sure to share it.
What do you think of banks raising interest rates on their line of credits?