The Bank of Montreal has slashed its five-year fixed mortgage rate to 2.99 per cent in a move that some real estate experts say will soon force the other major banks to follow suit.
“Usually when one leads, the others follow,” Debbie Thomas, a partner at brokerage The Mortgage Group, said Wednesday.
But she cautioned that although the rate, which is being offered until Sept. 30, will help some new homebuyers enter the market it may not be wise for everyone to rush in.
“It all comes down to whether you’re a gambler or your confidence with your payments increasing,” said Thomas.
She suggested that those who currently have a variable mortgage rate, which may be less than 2.99 per cent, double up on their payments while the current low-interest environment lasts.
“That’s how you really win, get a low interest rate and put extra payments into that rate,” she said.
BMO said it slashed its posted rate from 3.29 per cent to 2.99 per cent because of lower bond yields.
“This rate change is driven by the fact that bond yields have fallen and we are in what is another busy season for buying a home,” said BMO spokesman Paul Gammal.
Vancouver mortgage broker Jessi Johnson said he doesn’t doubt the low promotional rate will bring in more customers for BMO. But it’ll also bring business to its competitors, where customers will likely ask if their lender can match the BMO rate.
And although the 2.99 per cent rate may seem like a good deal, it also comes with a variety of restrictions. Johnson, who heads the Jessi Johnson Mortgage Team, said those who lock into the BMO rate can only have a maximum amortization rate of 25 years, when other lenders offer more flexible periods of 30 or 35 years.
He suggests that homeowners review their mortgage payments every year and calculate whether they could still afford their payments if mortgage rates begin to rise.
The Bank of Canada has long warned that Canadians need to prepare themselves for a time when interest rates head north, increasing carrying costs.
BMO raised concerns from Ottawa when it offered the 2.99 per cent rate in March 2013. The move sparked a personal phone call from then-finance minister Jim Flaherty, who publicly chided the bank for lowering its key five-year rate, saying that he believed in “responsible lending” and was worried that the low rate would result in a race to the bottom with the other major banks.
Flaherty’s was concerned that the low rate might encourage Canadians to take on unsustainable loans and work against the government’s efforts to slow the momentum of the housing market.
Last March, BMO again cut its five-year fixed rate to 2.99 per cent but raised it to 3.29 per cent a month later on April 29.
At the time, Finance Minister Joe Oliver called it a “private decision” and said that the possibility of low rates triggering a housing bubble was “hypothetical.”
BMO has the lowest advertised five-year, fixed rate of the major banks, but some small lenders are offering rates as low as 2.74 per cent, according to the website Ratehub.ca.