2012 Mortgage Information
A strong international demand for bonds from Canada's biggest banks is trickling through the system and pushing mortgage rates to record lows at the consumer level.
The Bank of Montreal moved its benchmark five-year fixed mortgage rate to 2.99 per cent late Thursday � the lowest posted rate from a major bank in Canadian history.
BMO announced Thursday it was slashing the rate by a half a percentage point, a move expected to boost competition among the big banks vying for real estate customers.
Some conditions are attached to the offer, which ends Jan. 25, including that lump sum payments are limited to 10 per cent of the principal each year. The mortgage is also based on a 25-year amortization period.
Other banks are expected to follow suit. On Wednesday, Toronto-Dominion Bank reduced its posted six-year rate 132 basis points to 3.79 per cent and lowered the posted seven-year fixed rate 91 basis points to 3.99 per cent.
The five-year rate is by far the most common term for a first-time homebuyer. Borrowers can often negotiate a better rate from a bank based on their credit history, but the posted rate at a bank is seen as the benchmark for its mortgage offerings.
Lower mortgage rates are the results of a broader trend in which international bond investors are gobbling up Canadian offerings at record levels because they're generally perceived as being safer than bonds from other countries.
"Right now Canada is a function of what's happening in the global environment," Mark Kerzner of The Mortgage Group said. "And mortgage consumers are able to benefit from the noise in the rest of the world."
As Europe's debt crisis unfolds, investors are fleeing for safety. Canada is seen as a beacon in the financial world, so bond offerings from Canada's biggest lenders are in strong demand. Cheaper borrowing for the banks has in turn allowed them to seek new customers by cutting their consumer rates.
"There's a risk premium," said Nick Mitskopoulos, president of mortgage broker Verico Mortgage For Less in Toronto. "The three-to-five year money is cheaper [but] their short term costs have gone up."
"Their cost of capital is going up for the short term, but not for the long term."
Mitskopoulos said other lenders will be hard-pressed to match BMO's rate, although most will likely lower their rates a bit to compete. At that level, he suggests, BMO might be at a break-even level and is hoping to make gains from new customers through lines of credit.
Fixed-rate mortgages are closely tied to what's happening in the bond market, as that's how the banks finance their lending. Variable rate mortgages are more closely linked to the Bank of Canada's rate
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