September 26, 2020

Tempting offer! Big Banks slash mortgage rates to woo customers

Posted Jan 26, 2012 By Bill Hutchins

The Bank of Canada is urging Canadians to keep a lid on their personal debt, but that’s not stopping the consumer rush to big banks to cash in on rock-bottom mortgage rates.

The Bank of Montreal (BMO) led the way by offering a 2.99 percent fixed five year mortgage – a sub-prime rate never seen before in Canadian history.

“Phones have been ringing non-stop since we came out with this,” said BMO district vice president Lloyd Fleming.

He added: “It’s a great offer. It’s the lowest rate that we’ve ever seen in a mortgage market for a fixed rate type of product.”

Other big banks have followed with their own fixed rate deals. TD Canada Trust, for example, is offering a 2.99 percent fixed mortgage over four years. Some banks are also offering 3.99 percent mortgages over 7 and 10 year terms.

“We’re in a competitive business obviously and looking for those mortgage customers,” Fleming added.

Bond market rates, which are used to finance mortgages, are very low and that has allowed banks to pass on potential savings to consumers, Fleming added.

John Andrew, a professor of investment real estate at the Queen’s University School of Business, agrees the low rates will drum up business in the highly competitive banking industry. “It’s a terrific opportunity.”

He expects the 2.99 percent rate will be especially tempting to many first-time homebuyers. “This could be a catalyst that gets first-time homebuyers into the market.”

But Andrew cautioned that homeowners should not spend beyond their means when it comes to purchasing a more expensive home that’s tied to low rates. He says they need to be wary that mortgage rates likely won’t stay this low forever.

“Consumers need to be cautious when the mortgage comes up for renewal in say, four or five years.”

Fleming agreed that first time homebuyers, or existing homeowners looking to refinance their mortgage, should sit down with a mortgage specialist to discuss the pros and cons of a 2.99 percent rate.

The low rates do have strings attached. Some banks say the offer is time limited, the amortization period can’t exceed 25 years, early pre-payment options are reduced and then there are breakage fees to consider for current homeowners trying to refinance their mortgages.

Andrew says the Bank of Canada’s advice for Canadians to rein in their personal debt should not apply to mortgages. He says consumer debt through a long-term mortgage is different than racking up spending on a high interest credit card.

“By and large, homes increase in value and are a secure investment. That’s different than buying a new car or going on an expensive vacation.”

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