Last week’s surprise announcement from Ontario credit union Meridian, offering an 18-month fixed-rate loan at 1.49 per cent which it proudly calls the “lowest known posted mortgage rate in Canadian history,” prompted fears of other banks slashing their own rates in order to stay competitive. The race to the bottom is on.
Bank of Montreal: 2.79 per cent for the five-year BMO Smart Fixed Mortgage
CIBC: 1.99 per cent special intro rate on a four-year fixed-rate mortgage for first nine months and 2.83 per cent for the rest of the term
Meridian Credit Union: 1.49 per cent for an 18-month fixed-rate mortgage
Royal Bank of Canada: Employee pricing on mortgages
Toronto-Dominion Bank: 2.74 per cent for a five-year fixed-rate mortgage
Rates are now so low that even buyers are now beginning to be amazed by the amount of mortgage their lenders are willing to give them. The Conservatives aren’t about to take any action but have indicated they will be monitoring the situation closely. Meanwhile
Canada Mortgage and Housing has just introduced a 15-per-cent increase in the cost of mortgage default insurance for people buying homes with down payments of less than 10 per cent.
Besides the over-heated housing markets in Toronto and Vancouver, housing prices across the rest of Canada have either leveled off, fallen or are rising very modestly.
Meanwhile alternative lenders in places like Brampton are flourishing and may flourish even more if banks tighten their lending standards. Many South Asian buyers are highly motivated about getting into the real estate market at any cost, literally. Buying that second investment property is now fairly common and a good number of self-employed small business owners who do not declare all of their incomes or do a large part of their business in cash fail to qualify for housing loans. They form a growing base for alternative lenders who exploit the situation.
If the economy gets better, mortgage rates could start rising again and pundits are predicting a wave of defaults by over-leveraged home buyers and investors leading to a housing crash. But that isn’t expected to happen anytime soon as Canada’s economic growth is expected to remain sluggish for a long time to come.