Canada’s mortgage wars hit new low as fixed rate dips to 1.49%
Garry Marr – Financial Post
A Toronto-based credit union has upped the ante in the spring mortgage market rate wars, a development that is likely to make the country’s most expensive markets even hotter.
Though the term is only for 18 months, Meridian, Ontario’s largest credit union, has offered what appears to be one of the lowest rates ever on a fixed term at 1.49%.
Rob McLister, the founder of ratespy.com, said he thought the new promotion from Meridian might have been a misprint at first. “Now we can say spring market is officially underway,” he said. “This is interest rate insanity.”
McLister says over 18 months, based on the difference between the current five-year fixed rate mortgage, consumers will save $1,609 of interest per $100,000 of mortgage. He says that’s enough money to make people stop and think about signing up for the unusual term.
Meridian is advertising its new rate as “the lowest known posted mortgage rate in Canadian history” but acknowledges the term may not appeal to everyone.
Bill Whyte, chief member services officer for Meridian, said current funding costs make it possible for the credit union to drop its rates. “The economics are working right now. We are not publicly traded so, when we can, we offer rates and products that make sense for the membership base.”
The product is only available to people in Ontario and, to get the offering, consumers must pay a $25 fee to join the credit union which has 67 branches throughout the province. The deal is not available online.
As long-term rates continue to drop to previous unseen lows and the Bank of Canada forecast to drop its overnight lending rate again in the near future, some worry that cheap money is driving Toronto and Vancouver housing prices to unsustainable levels.
This month Canada Mortgage and Housing Corp. and Genworth Canada both raised the premium on mortgage default insurance, which covers banks for any shortfalls in the event of default. The premium was raised for people with less than a 10% down payment, a sector of the market considered the most at risk.
Whyte said he is aware of how heated the Toronto market is so the credit union does “work closely” with members to understand the impact a rate hike could have if they were to spike at the end of 18 months.
“We have to be prudent and make sure they are well qualified, stress test the mortgage. Outside of that, the market is what the market is,” said Whyte.
The Toronto Real Estate Board said this week the average sale price of all housing types across the GTA in March jumped 10% from a year to reached $613,933. The average price of detached homes in the city of Toronto rose 15.9% from a year ago to $1,042,405.
The Real Estate Board of Greater Vancouver reported this month a 53.7% jump in sales in March, which were 26.7% above the 10-year average for the month. The average detached home in the Vancouver area sold for $1,406,426 in March.
David Madini, an economist with Capital Economics who has long predicted a major market correction, said low interest rates could make a crash even worse.
Comment: Except there is no crash coming. We are close to the 4th anniversary of his prediction of a 25% drop in prices in Toronto, period that has seen prices rise by almost twice that. Is he just going to predict a crash every year, hoping that one day he might be right? Garth Turner did that for a decade and then gave up. Hopefully Mr. Madani gives up and faces reality himself.
“They are feeding part of the problem. They are feeding the bidding wars for these outrageously valued homes,” said Madini. “We are painting ourselves into a corner because when rates go up, and they will, then you’re in trouble.”
Comment: Sure, right after this latest round of mortgage rate drops? The standard rate now is 2.79% – even with a 70% increase in rates, to 4%, very little will change.
Banks have been actively cutting their rates too with the spring selling season in full force. Toronto-Dominion Bank entered the fray this month when it lowered its five-year fixed rate to 2.74%, which is the lowest advertised rate ever for a major bank for that term.
“With spring arriving, many Canadians have turned their minds to home buying as this is traditionally the busiest time of year in the real estate market. We review our rates on an ongoing basis to ensure we remain competitive and provide our customers with flexible mortgage options and the right rate to meet their individual needs,” the bank said in a statement, referring to the decision to head lower than competitors.
Comment: And this is coming from the most bearish of all the major Canadian banks. They always see the negative, and yet they are betting the opposite way.
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Contact Laurin Jeffrey for more information – 416-388-1960
Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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