A gimmick by Bank of Montreal to attract new mortgage customers in a traditionally sluggish month for sales has sparked a mini price war among rival banks.
A day after BMO announced it had dropped the rate on a five-year fixed-rate mortgage to a historic low of 2.99 per cent as part of a two-week promotion, Toronto-Dominion Bank and Royal Bank of Canada followed suit with limited-time-offers of their own.
TD said Friday it was lowering its four-year fixed-rate mortgage to 2.99 per cent, down from 4.79 per cent. Soon after, RBC dropped its four-year fixed rate mortgage to 2.99 per cent, and 3.99 per cent on a seven-year fixed-rate mortgage.
Both RBC and TD said the offer is open until Feb. 29, extending the promotion beyond the initial two-week period BMO introduced. BMO’s mortgage offer is good until Jan. 25 and represents a drop of 50 basis points.
Marcia Moffat, head of home equity financing at RBC said the bank is offering the rate on 30-year amortizations, while a spokesman for BMO said the bank is offering its lower rates on 25-year amortizations.
BMO said it would not likely be extending its promotion beyond the two-week promotional period in response to its competitors. At each bank, customers can lock in the rates for a period of up to 90 days by getting pre-approval.
Katie Archdekin, head of mortgage products at BMO, said though the rates are similar on each offer, they differ depending on whether customers want the locked-in rate for four or five years.
“We know some other guys are coming in with similar rates, they look to be coming in on shorter terms, so slightly different products,” Ms. Archdekin said in an interview.
The banks find themselves in a low-interest rate environment, which is causing them to compete fiercely for new customers as they try to compensate for slimmer margins by expanding their loan volumes.
“We really think this is an appropriate product for a lot of the market right now,” Ms. Archdekin said. “The rates are at historic lows, they have been here for quite some time now. We do expect at some point that they are going to rise.”
Such low rates also come at a time when the Bank of Canada and federal government are trying to caution Canadians against borrowing too much. The average Canadian household debt climbed to a record 153 per cent of disposable income in late 2011. Bank of Canada Governor Mark Carney has warned that could be problem if interest rates rise.