Categorized | Editorial

Low Mortgage Rates

Posted on 27 March 2013 by admin

After Bank of Montreal BMO brought back its controversial five-year fixed-rate mortgages to 2.99 per cent from 3.09 per cent, Canada’s Finance Minister was not too happy. He stated “Our government has taken action several times to make sure the housing market remains sound.”

“As for decisions by individual banks, as I have said repeatedly before, 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.”

The Bank of Canada has been warning that high household debt levels, the bulk of which come from mortgages, are the largest risk facing the country’s economy.

But when Manulife cancelled its low mortgage rate of 2.89 per cent after Minister Flaherty’s aid called the bank, there were concerns in many sectors that the government is meddling with the affairs of the banking industry. Not only that but why would a bank change its rate after hearing from Minister Flaherty’s office.

What’s more interesting is that between then and now, most big banks have been referring to mortgage rates one way or the other. They are trying to market it quietly and letting the public know in their own way that they can offer the best mortgage rate as well.

Billboard advertisements regarding mortgage rates have gone up from Scotia Bank , Royal Bank of Canada has also snuck ina word or two about mortgage rate in some of its advertisements.

Lower mortgage rates can attract more home buyers, and some buyers may be encouraged to take out larger mortgages. This is not what the Bank of Canada and Minister Flaherty want as Canadians are already under the record high debt levels. That’s not what policy-makers in Ottawa are hoping for. And that includes the official opposition.

Peggy Nash, the Finance Critic for the NDP said “I think it would not be helpful if we got into a mortgage rate war, because that obviously will get more people into the market, some of whom maybe shouldn’t be there.”

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