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By Penelope Graham

 

Here’s what you need to know about so-called mortgage wars - and how you can benefit as a consumer.

Here’s some good news for prospective homebuyers, or those looking to renew or refinance their mortgages: lenders are literally battling for your business.
The term “mortgage war” has been bandied about finance headlines lately, as banks and brokers have undercut each other’s rates over the past year. It’s resulted in the
lowest fixed mortgage rates we’ve ever seen - and has even prompted the government to wade into the action with attempts to reel them back. For the right homebuyer at the right time, these rates offer great opportunities to lock in for less - but there are long term financial implications for the economy, and potentially all borrowing customers.
Here’s what you need to know about so-called mortgage wars - and how you can benefit as a consumer.
Open season on home buyers
There are several forces at play behind record low mortgage rates - the first being a shortage of qualified homebuyers. That’s right - there are simply less people hunting for a house these days that the banks want to lend to, and they’re pulling out all the stops to catch the attention of those who do qualify.
This decline is due to the new mortgage rules put in place by the Department of Finance and the Canadian Housing and Mortgage Corporation last July. These new rules cut the maximum amortization (the full length of a mortgage) from 30 years to 25, for buyers paying less than 20 per cent down on their home purchase. Those who needed to borrow more for their mortgage suddenly had five less years to pay it all back - and many would-be buyers were sent back to the savings drawing board as a result.
The Government’s stance
These affordability reducing rules are part of the Department of Finance’s attempts to slow the rapidly growing household debt levels across Canada. Last summer, the average debt to income ratio, which measures how much one earns compared to their debts owed, was reaching 160 per cent - the toxic level that contributed to the housing market downturns in the U.S. and UK. Now, that ratio has reached 165 - a new high.
The Department of Finance’s main concern was how easy it was for Canadians to take on more debt than they could handle - and that the banks were allowing it to happen. Now, record low mortgage rates can be seen as counterproductive to these measures. After all, mortgage rates are expected to eventually go back up - and when they do, many Canadian borrowers may find themselves tapped out when forced to renew or refinance at a higher rate.
That’s what prompted Finance Minister Jim Flaherty to scold both Bank of Montreal, who unveiled their 2.99 rate for the third time, and Manulife, who introduced a 2.89 per cent five year fixed. Manulife heeded Flaherty’s warning and retracted their rate. BMO did not.

The new normal

The truth is, neither BMO or Manulife are offering the lowest rates on the market - those have trended below the 2.80 mark for weeks now. In fact, some lenders even dipped as low as 2.74 recently - the lowest fixed mortgage rates ever seen.
These rates are offered by brokers and credit unions. While they have traditionally always priced their products lower than what’s posted by the big banks, it was BMO’s first introduction of the 2.99 last January that really set things in motion. It was the first time a big bank had ever broken the three per cent barrier - and the response from consumers and other lenders was overwhelming. These days, though, with broker rates so consistently low, the term “mortgage war” has a softer definition - the lowest rates can be found by all home buyers who are willing to
compare to learn about their options
.
Why there’s no need to wait for a mortgage war
Smart mortgage shoppers know that there are better deals available than their bank’s posted rates - and rate comparison
makes it easier than ever to see the rates offered by every lender in the country. A recent Bank of Canada study also found that those with “positive bank bias” - meaning consumers who only stuck with the main banks while gathering mortgage rates - limited their rate options to as few as three - and almost always paid more than consumers who compare the market or used a broker to find their best rate.
Comparing rates is easy.

 

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