By Graeme McNaughton
The Bank of Montreal has lowered their mortgage rates to an all-time low of 2.99 per cent, leaving some worrying there will be a “race to the bottom” with other Canadian banks.
The change, announced Monday, was made to the bank’s fixed five-year mortgages, effective immediately.
“By introducing a lower rate, along with a short ammortization, we’re helping the consumer with the financing, being able to pay a mortgage down faster and putting themselves in a better overall position, financially,” Frances Hinojose, a BMO mortgage specialist in Toronto, told Humber News.
In a statement this week, Jim Flaherty, Canada’s finance minister, warned the banks not to do what American banks did in the early to mid 2000’s by offering increasingly lower mortgage rates in order to entice buyers, which lead to a market crash in 2007.
“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,” said Flaherty in a statement to Humber News.
According to The Globe and Mail, BMO lowered their rates last year to 2.99 per cent, much to the chagrin of the federal finance ministry, which said the lower rates at all banks would encourage Canadians to take on more debt. The rates were raised back to 3.09 per cent by the end of the year.
However, one Humber professor said rates won’t go much lower because banks will still want to make a profit on their loans.
“I think that anything much below 2.5 and 2.75 per cent and the banks don’t make any money, and the banks aren’t stupid,” Steve Bang, a Humber business professor in financial planning and bank financial management, told Humber News, adding the problem isn’t a race to the bottom, but that people will take on a debt they might not be able to afford.
“I think the real concern is that too many Canadians are going to load up with huge mortgages, and in three to four years if the rates do go up, there’s going to be a problem.”
While the new rate is the lowest among Canada’s five big banks, there are lower rates available. According to RateHub.ca, the lowest five-year fixed mortgage is currently 2.79 per cent, currently available through The Mortgage Centre and Mortgage Emporium.