TORONTO - Mortgage rates are headed higher again as Canada's biggest bank, the Royal, is bumping up the cost of borrowing to buy a house by nearly a seventh of a percentage point.

 

The increase of 15-hundredths of a point on loans ranging from six-month variable to 10-year closed loans are effective Tuesday.

 

The third mortgage rate increases in recent weeks reflect the rising costs of borrowing on the bond market, where banks finance their mortgage lending.

 

Bond investors are demanding higher interest rates to part with their money because they expect rising inflation will eat away at bond returns in future.

 

At the Royal, a three-year closed mortgage rises to 4.75 per cent, while a five-year rate increases to 6.25 per cent and a 10-year loan jumps to 7.2 per cent.

 

In the last month or so, mortgage rates tied to the bond market have risen

 nearly a full point in three separate rate hikes.

 

Mortgage loans tied to the prime rate have held steady so far but are expected to rise this summer if the Bank of Canada as expected raises its key rate and the banks follow with prime rate increases of their own.