Autumn, the second busiest buying and selling season for Canadian real estate, is just around the corner and Canadalend.com observes that Canada’s big banks are doing everything in their power to lure in first-time home buyers.
The Bank of Montreal has once again lowered its five-year fixed mortgage rate to 2.99%, from 3.29%, a move that, in the past, has forced a rate war with the Canada’s other big banks. (Source: Marr, G., “Bank of Montreal lowers five-year fixed mortgage to 2.99%,” The Financial Post , September 9, 2014; http://business.financialpost.com/2014/09/09/bank-of-montreal-lowers-five-year-fixed-mortgage-to-2-99/.)
The move comes on the heels of lowering bond prices, which directly impact mortgage rates. At the beginning of the year, many economists were predicting that the five-year fixed rate would inch higher as the economy improved. That hasn’t happened; in fact, rates have been on the decline.
The yields on five-year government of Canada bonds ended 2013 at 1.95% and are currently hovering around 1.60%—the same level they were at in June. Five-year mortgage rates are driven by five-year government bond yields, with roughly 66% of all Canadian mortgages having a five-year term.
The lower interest rates are also in response to weak economic data coming out of Ottawa. In August, the Canadian economy unexpectedly lost 11,000 jobs, and on top of that, Canada’s fourth-quarter hiring outlook hit a four-year low. While the unemployment rate is steady near seven percent, the Canadian economy remains tepid. (Source: Evans, P., “Canada loses 11,000 jobs in August,” CBC web site, September 5, 2104; www.cbc.ca/news/business/canada-loses-11-000-jobs-in-august-1.2756655.)
The Bank of Canada has kept the overnight rate at one percent since September 2010 and hinted it wouldn’t raise it until the Canadian economy showed more signs of sustained growth. That said, the recent economic data suggests the Bank of Canada will continue to keep interest rates low well into 2015.
This is great news for first-time home buyers or those looking for a second or third mortgage. Keep in mind, however, that not all mortgages are created equal; there’s more to consider than just numbers, though that information may be hard to pull from the banks.
For example, the Bank of Montreal’s 2.99% financial product comes with strings. It has a prepayment option of 10% of the mortgage each year, as opposed to 20%, which is common on comparable products at other financial institutions. But there’s more! The Bank of Montreal will only hold the 2.99% rate for 90 days, compared to 120 days with most lenders.
You also can’t break this particular 2.99% mortgage before it comes up for renewal in five years unless you sell the property or refinance with another Bank of Montreal product. Take the Bank of Montreal up on their 2.99% offer and you’re stuck dealing with them and only them.
Canadalend.com notes that while the rate offered by the Bank of Montreal is the lowest among the big banks for a five-year term, it is still higher than what is being offered by discount brokers. For that matter, you may not even want a five-year fixed mortgage.
To get all the facts about getting the mortgage right for you and your lifestyle needs, contact a licensed agent at Canadalend.com. Because we’re independent, your Canadalend.com agent works for you, not a bank or lending institution. We will sit down with you and figure out what kind of mortgage you need and search out hundreds of banks and lenders to get you the best overall mortgage possible.