Mortgage war as BMO cuts rates, homebuyers benefit

March 6, 2013

Competition for mortgage customers has Finance Minister Jim Flaherty concerned about downward pressure on rates. On March 2, Flaherty warned Canada’s banks to remain careful and act prudently, to prevent a rate war heading into the key spring home-buying season.

“My expectation is that banks will engage in prudent lending – not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States,” Flaherty said in a statement to the Globe and Mail, after the Bank of Montreal reduced its price on five-year fixed-rate mortgages to 2.99 per cent from 3.09 per cent.
The Bank of Montreal’s rate was the lowest advertised five-year mortgage rate among the big banks as of March 3, although lower rates are available in the market.
This is great news for Victoria homebuyers and sellers. Heading into the important spring home-buying season, ultra-low mortgage rates might just be what is needed to kick start the market and help move some of the inventory that has been accumulating the last several months.
However, Flaherty is concerned that the low rates may lead to the same problems that have ravaged the U.S. housing market as buyers accumulate enormous amounts of low-interest debt they are unable to manage once rates start to move back up.
In a press release Ernie Johannson, senior vice-president of personal banking in Canada for BMO, said “BMO’s efforts to encourage Canadians to pay down debt and build equity in their homes have been aligned with Minister Flaherty’s timely and prudent actions to encourage moderation in the housing market."