This morning, Manulife Bank of Canada was the latest lender to lower their five year fixed mortgage rate, down to 2.89% from 3.09% - however, the rate has now been retracted due to pressure from Finance Minister Jim Flaherty.
In a statement to the press, the bank stated, "After consulting with the Department of Finance, Manulife Bank has withdrawn the promotional campaign and reverted to our previous posted rate."
Finance Minister Jim Flaherty has been warning banks and customers alike that lowering mortgage rates poses a risk to the economy and to individual borrowers, as cheap mortgages encourage home buyers to take on more debt than they may be able to handle over the long term.
These concerns also prompted the government to introduce new rules last summer to make it harder for high risk buyers to obtain mortgages, which included cutting amortizations for high ratio borrowers from 30 years to 25.
Low big bank rates, however, can be seen as counterintuitive to these measures. BMO drew stern words from Flaherty for the unveiling of the 2.99% last January, and he has an equally sharp tongue for Manulife's rate drop, prompting the mainly online lender to restore its 3.09% five year fixed rate.
Why Lenders Lower Their Rates
So why did Manulife jump into the low rate fray? It all comes down to good, old fashioned competition! There are simply fewer qualified mortgage buyers these days - many would-be buyers were sent back to the savings drawing board by those aforementioned CMHC rules. Combined with softening home sales across the country, some lenders are doing what they can to capture more market share - and a bit of the spotlight. Keep in mind that when BMO dropped their rate this time around, it was only by about 1% - yet it garnered the attention of home buyers and headlines.
When larger lenders cut their rates to record lows it sets a precedent among the big banks, whose posted rates are traditionally higher than those offered by mortgage brokers and credit unions. In fact, as of today, the very lowest five year fixed mortgage rate available in Canada is 2.77%, offered through brokers Butler Mortgages and Advent Mortgage Services - a difference of 12 basis points from Manulife’s 2.89%.
Mortgage War - What Is It Good For?
These rate drops invariably pose the question: Are we in for a spring mortgage war? According to the experts on our Mortgage Rate Outlook Panel, rates may drop marginally - but we’re unlikely to see the frantic undercutting of seasons past. George Hugh, President of Taurus Mortgage Capital and panel member says, “Due to a slower housing market and general riskier global markets, the wars are NOT likely to happen,” adding that while rates traditionally trend down this time of year, no significant movement is expected beyond their already record lows.
The New Normal
As well, the definition of a mortgage war may have less clout these days. Sure, pandemonium ensued when BMO first introduced the 2.99% last January - it was the first time a big bank had ever gone below three%. Broker rates were also hovering around the 2.90 mark at the time, leaving a very small gap between big bank convenience and bargain prices. Brokers have been edging their rates lower ever since, however, and have trended below the 2.80% over the past few months - this time around, record lows are more commonplace.
Ways To Always Get a Lower Rate
Here’s what banks don’t you want you to know - there’s no need to wait around for posted rates to drop! Informed consumers get lower rates - and there’s proof. A recent study by the Bank of Canada found that consumers who compared the mortgage market and were aware of rates offered by other lenders always got a better deal on their mortgage - and all they had to do was question their bank’s posted rate. The study also found that while about 30% of mortgage shoppers use a mortgage broker to find their mortgage, of that group, only a third chose to stay with their home bank.