August 24, 2019

Rates

Big banks compete on low mortgage rates

David Friend
The Canadian Press

If you’ve been shopping around for a mortgage lately, you might’ve noticed that some offers from the country’s biggest banks are looking especially attractive.

Canadians have been handed a golden opportunity to snag mortgages at rock-bottom rates, but highly competitive lending is pushing overly optimistic opportunities on people who might not understand what they’re getting themselves into, suggest some members of the mortgage industry.

“The banks are coming out to try and be lucrative enough to pull clients in,” said Jeff Mayer, an agent at Mortgage Intelligence, a Toronto-area mortgage broker. “That being said, I still think everyone should be taking a step back and looking at what direction they should go in.”

Direction is something that a lot of Canadians could probably use these days when it comes to lenders, especially considering the lack of certainty that has engulfed the mortgage industry as of late.

Hardly a year ago, it seemed like a black cloud was gathering over lenders, with fears it would be impossible for some to even consider applying for a mortgage and worries they’d be shown the door before they’d even filled out the application.

Those concerns were pushed aside in a matter of months, and many Canadians in good financial standing can now secure very attractive rates. The question is, how was this shift possible in a recovering, yet still uncertain economy.

“It’s a knee-jerk reaction — Canadians are known for it,” Mr. Mayer explained of the lenders. “You’re going to see rates climb in the next three to four months, guaranteed.”

All of this talk about interest rates climbing has makes it especially unusual to see some banks drumming up attention for surprisingly low mortgages.

On Friday, Bank of Montreal  launched a promotional push for its five-year closed variable mortgage at 2.25 per cent, which it calls the “lowest rate in more than 30 years.”

“We think lower mortgage rates have played a key role in providing more affordability for home buyers, which has helped turn Canada’s housing market around from weaker levels earlier this year,” said Frank Techar, president of the bank’s personal and commercial banking division.

“We are trying to support our customers coming off of what we consider to be a pretty difficult year, in general for everyone.”

So far, the other Canadian banks haven’t moved to match BMO’s closed variable rate, though they’re offering other low and competitive rates on other types of mortgages.

“A year ago they (the banks) couldn’t do it because we were going through this huge credit crunch, so they had to cut the reins,” said Clay Gillespie, vice-president and portfolio manager at Rogers Group Financial in Vancouver. “Turns out our Canadian banks weathered the storm quite nicely, and we have a real estate market that’s still pretty vibrant.”

The banks have received extra help from Bank of Canada governor Mark Carney, who issued a conditional commitment to keep the policy rate at the record low of 0.25 per cent until next summer. That means mortgage rates will hold near their record lows for at least a little longer.

Ottawa has also pitched in to boost the amount of money first-time home buyers can withdraw from their RRSPs from $20,000 to $25,000. Other tax credits have been given to first-time buyers who renovate their homes.

All of these incentives have helped reinvigorate the housing market, and led real estate firm Re/Max to boast that Canada could see “significant growth” in the last three months of the year.

However, Mr. Mayer suggested that Canadians shouldn’t latch onto low mortgage rates simply because they look appealing at first glimpse. “The problem with the banking facilities is they’re all about the bottom line, not the clientele,” he said.

Mr. Mayer said part of the motivation comes from the major banks missing their internal targets for mortgage sales this year, partly because they’ve been too tight with their lending.

“Sometimes the product people are going after is not always the right product; sometimes the lowest rate is not always the best deal.”