The Bank of Montreal has fired the first audible volley as competition among mortgage lenders heats up heading into the important spring home-buying season.
The bank announced Sunday it has reduced its five-year, fixed mortgage rate by 0.10 points to 2.99 per cent in what is seen as a bid to grab a bigger share of the spring mortgage business.
BMO sparked a mortgage-rate war this time last year when it temporarily offered the same deal. The move prompted other banks to quickly follow suit and drew the ire of federal Finance Minister Jim Flaherty, who was trying to discourage Canadians from taking on more household debt.
This year's announcement is also expected to put pressure on other banks to lower their rates.
But two local mortgage brokers said Monday the impact will likely be more muted this time because several other lenders have already been quietly offering five-year terms at even lower rates -- 2.89 per cent and 2.94 per cent. They just didn't publicize it.
"So in the mortgage-brokerage world, this is nothing new," said Daryl Harris, an accredited mortgage professional (AMP) with Verico One Link Mortgage and Financial in Winnipeg and the first Manitoba broker to be elected chairman of the Canadian Association of Accredited Mortgage Professionals.
"But I certainly think it will spur some interest," added Candace Zihrul, an AMP with the Invis office in Winnipeg. "Everybody is trying to get a piece of the pie out there right now."
Zihrul said several lenders, including Scotia Bank and TD Bank, also recently lowered the rate on their 10-year mortgages to 3.69 per cent from 3.99 per cent. However, she and Harris noted these special rate offers usually have restrictions and conditions attached, including stiff penalties for refinancing or paying out the mortgage before the term is up, and they can vary from lender to lender.
Harris cited a recent case where a client wanted out of a five-year mortgage with three years remaining and the penalty was going to be $8,500.
Harris and Zihrul said it's shaping up to be another busy spring for the local real estate market, which hasn't slowed as much as some markets since the Harper government tightened mortgage insurance rules last July and made it slightly harder for Canadians needing Canada Mortgage and Housing Corp. backing to obtain mortgages.
Zihrul said the volume of transactions in Winnipeg has remained fairly strong through the fall and winter. With mortgage rates at historic lows, the demand for homes continues to outstrip the supply, she and Harris said, especially for homes priced under $250,000.
"That (finding a home) is the biggest challenge," Harris said.
Analysts said Monday mortgage rates in Canada are going nowhere except perhaps down in the near term. CIBC World Markets extended its forecast for when the central bank would start hiking rates to the third quarter of 2014 -- six months longer than it previously anticipated.
The concern is that with teaser mortgage rates such as the one BMO announced, Canadians will continue to invest in real estate and push home prices up, with potentially dire consequences for the economy and homeowners.
-- with files from The Canadian Press