Finance Minister Jim Flaherty has been working on various banks to try to stop them getting involved in mortgage rate wars. With the first time that a fixed rate 5 year mortgage has been advertises at below 3% he has been scolding various institutions.
Manulife received a warning when they were promoting a 2.89% five year fixed mortgage and took action. A spokesman for the bank, Graeme Harris explained that they changed back to their original rate of 3.09% after discussions with the department of finance.
It would seem that the finance minister thinks that just a small rise in interest rates will make a huge difference to consumer behaviour.The Bank of Montreal changed its very restrictive five year fixed mortgage rate to 2.99% from 3.09%. This ties in customers and has very low prepayment privileges so is not an attractive product really, yet Flaherty complained about this move as well.
However, there are lots of lenders, including banks now offering below 3% for a five year term and so Flaherty may need to be contacting all of these. A mortgage specialist, who wished to remain anonymous, explained that banks will arrange mortgages for 2.99%. It can be found online as well, even with very little research.
Tracking mortgages is very easy these days. There are many sites that will compare them, so that you can see which is the cheapest. Ratesupermarket.ca has found the cheapest five year closed mortgage to be 2.77%. The president, Kelvin Mangaroo explained that there are many around 2.99% at the moment.
Butler Mortgage, who offer a 2.77% rate have explained that they are eating in to their own commission amounts in order to be able to able to offer such a low rate. A broker from the firm, Ron Butler explained that there are many lenders willing to go below 2.99%.
The Bank of Canada five year bond is what the five year mortgage term is based on. There is a wide spread between these figures and it should enable borrowers to get some good deals. Capital Economics spokesman, Dave Madani explained that it seems Flaherty’s move is all about optics. He states that the mortgage rate is being kept artificially low by the government because they are backing bond issues with mortgage debt.
If buyers have less than 20% deposit then they have to get mortgage default insurance. The companies that provide this insurance are government backed and this makes it easier to sell the bonds. It keeps rates down which encourages more mortgage lending and without it rates would be higher.
Madani also stated that the government can do little about the lower rate trend as they are everywhere in the world at the moment. However, Ron Balvers, chair of investment and portfolio management form McMasters University said that he felt the intervention of the finance minister may just hurt those who do not negotiate on price. This because banks are willing to go lower but need to show the government they are complying so their published rates are higher.
Crystal is a Finance blogger who occasionally writes on finance and relationship, She recently read this article http://business.financialpost.com/2013/03/19/flaherty-manulife-mortgage-rates/ and found it interesting.