Scotiabank has lowered its five-year mortgage rate to 2.97 per cent, beginning a new sally in the war to win business.
The rate, effective until June 7, is the lowest among the big banks for a fixed five-year rate.
Two weeks ago Investors Group unveiled a three-year variable rate of 1.99 per cent. Variable rates often are lower than fixed rates, as the consumer takes the chance that interest rates will rise and cause higher payments.
In 2012, a number of Canadian banks offered five-year mortgage rates below three per cent — something that earned them a stern rebuke at the time from then Finance Minister Jim Flaherty. The banks quickly dropped the offer.
Flaherty tightened the country’s mortgage insurance rules in July 2012, in a bid to curb the rapid growth of consumer debt and soaring house prices. Although the measures briefly cut down on the number of people applying for mortgages, Canada’s housing market remains hot.
However, current Finance Minister Joe Oliver issued a statement today saying he will continue to monitor the market.
"It's a small drop and its not my intention to be involved. We continue to monitor it," he said in the lobby of the House of Commons.
Oliver pointed to government actions from 2008 to 2012 to reduce consumer indebtedness and the government's exposure to the housing market through CMHC.
In March, Bank of Montreal again offered a fixed five-year rate of 2.99 per cent, but Scotiabank’s 2.97 per cent is a shade lower.
There is fierce competition among the banks for mortgage business, considered a secure form of consumer loan.
This summer, Royal Bank will offer real estate agents $1,000 for referring five first-time homebuyers.
First-time buyers are particularly desirable because they need a large sum of money and are likely to become bank clients for life.
John Andrew, a real estate expert with Queen's University, said it was likely that other banks would follow Scotiabank's lead to keep in pace in a competitive market — especially given a lag in sales in the all-important spring market which was delayed by bad winter weather.
"There's no question that the mortgage lenders are very concerned about this slow spring and are obviously trying to catalyze the market and it's obviously even more competitive right now than it normally would be," Andrew said.
"We're looking at mortgage rates very, very, close to this level being predominant right into the fall, and then I think we're going to see bond yields begin to creep up again and we'll start to see some rates rising."