BMO slashes 5-year mortgage rate to 2.99%
Finance Minister Joe Oliver says he will 'monitor the market closely'
The Bank of Montreal is slashing its five-year fixed-rate mortgage to levels that caused former finance minister Jim Flaherty to express concerns last year. The bank says it will offer a five-year rate of 2.99 per cent, down from 3.49 per cent.
BMO is the first big bank this year to lower its key five-year rate below the three per cent threshold. In March 2013, BMO dropped its mortgage rate below that level, causing Flaherty to publicly address the bank, saying that he disapproved of the rate and discouraged other big banks from following its lead.
At the time, he said he believed in "responsible lending," and that he was concerned such low rates would work against his attempts to slow the momentum in the housing market.
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Flaherty resigned from his role as finance minister in a surprise announcement last week. He was replaced by Joe Oliver.
"Our government has taken action in the past to reduce consumer indebtedness and the government's exposure to the housing market," Oliver said in an emailed statement. "I will continue to monitor the market closely."
But later in the day, Oliver said he isn't about to intervene, calling BMO's move a "private" decision.
"There's a market, the bank made its decision, the chief executive officer of the Bank of Montreal informed me about it, I listened to his explanation, his reasons, I reiterated ... that the government is gradually reducing its involvement in the mortgage market," Oliver told reporters.
BMO spokesman Paul Deegan in an emailed statement said: "This rate change is driven solely by the fact that bond yields have fallen, and we are in what has traditionally been the busiest season for buying a home."
Longer-term mortgage rates tend to follow bond yields and those yields have been falling recently. The Bank of Canada benchmark five-year bond yield, for instance, was at 1.69 per cent on Wednesday. Just three months ago, the yield was 1.96 per cent.
Other banks cut rates
Other Canadian banks have also recently cut their rates. Toronto-Dominion Bank reduced its four-year fixed-rate mortgage to 2.97 per cent earlier this month, while Scotiabank lowered its rates across the board while issuing a four-year special rate at 2.94 per cent.
The move by BMO puts it in line with rates from Meridian Credit Union, which lowered its five-year fixed-rate mortgage to 2.99 per cent in February. Meridian is the largest credit union in Ontario.
Some mortgage brokers are also advertising five-year fixed rates below three per cent from other lenders.
Some economists say the imminent heating up of the spring housing market is also a key factor driving rates lower.
"Financial institutions are responding because in the spring you always see a seasonal uptick in housing markets," TD senior vice-president Craig Alexander told CBC News Network today. "Heading into the spring, when we see seasonal improvement in housing activity, you always tend to get a bit more competition and it leads to some lower mortgage rates being offered."
With files from The Canadian Press