2 Bank Stocks to Buy if Mortgages Skyrocket

Rising mortgage rates after the Bank of Canada introduces more interest rate hikes could mean great news for investors who own these two bank stocks.

January 2022 saw inflation rates high a three-decade high of 5.1%. The Bank of Canada (BoC) finally announced the long-awaited interest rate hikes on March 2, 2022. Rising interest rates come in handy in gradually bringing inflation rates down. The interest rate hike earlier this month was just one of a series of incremental increases in BoC’s schedule.

BoC said interest rates would be on a rising path, and the scheduled dates for interest rate announcements are as follows:

  • March 2
  • April 13
  • June 1
  • July 13
  • September 7
  • October 26
  • December 7

Inflationary environments and rising interest rates are factors that typically result in investors moving away from growth stocks. Rising living costs result in investors fleeing risk and investing in reliable and stable assets. Canadian bank stocks are some of the most resilient income-generating assets that already boast excellent long-term growth potential.

Mortgage rates are expected to rise due to rising interest rates, which could inject growth for financial institutions with significant exposure to the housing market. Today, I will discuss two bank stocks you could consider adding to your portfolio to capitalize on the development.

Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) is a $71.40 billion market capitalization Canadian bank and one of the Big Six. While it might not be the biggest financial institution among its peers, it offers investors the most significant exposure to the housing market through its mortgage loans.

The bank’s heavy reliance on the housing market has resulted in issues for it in the past, but it might offer a boost to its performance on the stock market amid rising interest rates. Many investors remain bullish on its growth prospects as interest rates rise. Coupled with reduced loan-loss provisions, the bank could offer outsized shareholder returns in the coming years.

At writing, CIBC stock trades for $159.26 per share, and it boasts a juicy 4.04% dividend yield.

Toronto-Dominion Bank

Toronto-Dominion Bank (TSX: TD)(NYSE: TD) is a $177.84 billion market capitalization Canadian bank and another one of the Big Six. Headquartered in Toronto, TD Bank was one of the two financial institutions that did not waste time in announcing a rate hike after the BoC increased its benchmark rates. TD Bank boasts a strong balance sheet, and it is diversifying its financial services business.

TD Bank also has significant exposure to the Canadian housing market. Reduced loan-loss provisions have already boosted its financial performance. The Canadian bank could be well positioned to deliver stellar shareholder returns, as its profit margins increase due to rising interest rates.

At writing, TD Bank stock trades for $98.36 per share, and it boasts a juicy 3.62% dividend yield.

Foolish takeaway

Are you are worried about deteriorating buying power due to rising mortgage rates for a home you want to live in? In that case, now might be the right time to get a mortgage pre-approval and secure mortgages at today’s rates to potentially leverage lower rates.

Suppose that you are thinking of buying a house as an investment property and taking out a mortgage for that purpose. In that case, it might be better to doll out the cash outlay in more liquid investments that can offer you stellar shareholder returns due to rising mortgage rates.

CIBC stock and TD Bank stock are two banking stocks that could benefit from the development and could be ideal investments for this purpose.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

happy woman throws cash
Dividend Stocks

The Ideal TFSA Stock: A 5.9% Yield-Paying Constant Cash

Enbridge’s predictable cash flows, substantial growth pipeline, and long history of dividend increases underpin its long-term investment appeal for TFSA…

Read more »

woman gazes forward out window to future
Dividend Stocks

Dividend Income in Retirement: What Could Go Wrong?

Dividend investing is a proven way to create income in retirement but you must know the risks you need to…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

A 5% Monthly Payer I’d Buy for My TFSA: About $100 a Month on $24,000

Canada’s largest residential landlord offers a high yield, reliable monthly income, and a tax-sheltered foundation for TFSA investors.

Read more »

Two seniors walk in the forest
Dividend Stocks

Can Dividends Replace a Paycheque in Retirement?

Can dividends in retirement replace your paycheque? Explore how Scotiabank, RioCan REIT, and Fortis can help build a steady retirement…

Read more »

Sliced pumpkin pie
Dividend Stocks

The Fees That Quietly Eat Into a Small Investment

Many funds charge outrageous fees, but broad market index funds like the iShares S&P/TSX Capped Composite Index ETF (TSX:XIC) usually…

Read more »

dividends grow over time
Dividend Stocks

The U.S. Dollar is Rising Again: Here’s What VFV Investors Should Know

VFV investors receive both U.S. equity returns and currency translation.

Read more »

businessmen shake hands to close a deal
Dividend Stocks

A Canada-India Trade Deal Could Be Big for Infrastructure: Is WSP Stock a Buy?

India could require roughly US$840 billion of urban infrastructure investment over 15 years.

Read more »

woman considering the future
Dividend Stocks

How Much Would You Need to Invest to Earn $100 a Month in Dividends?

These two monthly-paying dividend stocks can boost your passive income in this uncertain macroeconomic environment.

Read more »