BMO is lowering the posted rate on its promotional five-year mortgage to 2.79%, effective immediately.

Madhavi Acharya-Tom Yew – Toronto Star

Bank of Montreal has slashed the posted rate on a fixed five-year promotional mortgage, kicking off the spring home buying season amid fears of a slowdown in real estate – and rising household debt.

Comment: No one is afraid of a real estate slowdown. Except in Alberta.

BMO, as the bank is known, said Tuesday that it has reduced the rate on its Smart Fixed Mortgage to 2.79% from 2.99%, effective immediately.

The rate for the standard five-year fixed mortgage remains at 4.74%, according to BMO’s website.

Canada’s other big banks quickly followed suit.

Comment: So the experts who all warned of rising rates ruining real estate… what do they say now?

The 2.79% rate is the lowest-ever posted five-year mortgage rate from one of Canada’s Big Banks, said Penelope Graham, editor at RateSupermarket.ca.

Some smaller lenders and mortgage brokers are currently offering five-year rates as low as 2.59%, Graham added.

Comment: There are variable rates in the 2.05% range.

“This is the time of year when the mortgage market gets really competitive. Everyone is coming out of hibernation and hitting the open houses and they’re really looking right now,” Graham said.

“This is the time of year when people really do make that decision on a housing purchase. The lenders know this and they price their products accordingly to capture as much market share as possible.”

TD Canada Trust quickly matched the move, lowering its five-year fixed rate to 2.79, effective Wednesday, a spokesperson said in an email to The Star. The current rate has been posted at 3.09% since Jan. 27.

Spokespersons for Royal Bank of Canada and Canadian Imperial Bank of Commerce told the Star in separate emails that they can match the 2.79% offer, though the posted five-year rates at both banks are higher. Scotiabank has a posted rate of 2.85% for a five-year mortgage, according to its website.

Five-year mortgages are one of the most common ways for consumers to finance the purchase of a new home, and competition among lenders often heats up during the spring when buyers and sellers tend to be more active.

Home sales in Toronto exceeded expectations in February, with sales rising 11.3% from the same period a year ago, and the price of an average detached exceeding $1 million.

Comment: Who is afraid of a slowdown?

The average price of a Vancouver property rose 1.8% to about $825,000 in January from a year earlier and climbed 4.9% to $576,000 in Toronto, according to the Canadian Real Estate Association.

“There’s these very low mortgage rates that make it cheaper than ever to borrow but the sums you have to borrow are just astronomical,” Graham said.

Comment: Yes, but it is all about the monthly cost. And low rates today, even with the high prices, are almost the same as they were 30-35 years ago. Prices may have been lower, but the 18-21% mortgage rates more than offset that.

However, the Canadian Real Estate Association recently cut its outlook for home sales this year.

The association predicts the impact of declining oil prices on consumer confidence in some provinces will push down home sales by 1.1% to 475,700 units countrywide.

Comment: Yes, if you average the drop in Alberta across the whole country. But oil prices will actually push sales and prices higher in Ontario.

Oil-price shock sends Canadian pessimism to recession-era levels

At the same time, household debt levels have hit a new record, according to figures released this month from Statistics Canada.

Canadians now owe a record $1.63 for every $1 of disposable income.

Comment: This is not a record, we have been at 163% before. Not that it is good, but it is not some new high-water mark. It was 162.6% in 2012, for instance. It would be nice to see that go down, but it is not as bad as it is being portrayed. If we calculate it the US way, then we are only at 153%. But 25 years ago, we were only at 80% – a point to aim to get back to.

The Bank of Canada and its governor Stephen Poloz have repeatedly warned consumers to reduce their debt levels because interest rates will eventually rise.

However, the central bank surprised markets by cutting its benchmark overnight rate in January, as part of an effort to shield the economy from the impact of collapsing prices for crude oil.

Some observers worry that the interest rate cut will fuel already-blistering real estate markets in Toronto and Vancouver, encouraging some Canadians to take on more debt at record-low rates.

The International Monetary Fund also warns that Canada’s hot housing market and rising household debt levels are key risks for the domestic economy.

Comment: Debt is a risk, yes. But how is real estate a risk?

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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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