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Home shoppers seeking an insured mortgage face a higher standard in proving they can afford the payments, under new federal rules. First-time buyers and young families are particularly affected. (Ben Nelms/The Globe and Mail)
Home shoppers seeking an insured mortgage face a higher standard in proving they can afford the payments, under new federal rules. First-time buyers and young families are particularly affected. (Ben Nelms/The Globe and Mail)

Decoding the mortgage market

Is the new 1.99% 18-month fixed mortgage rate a good buy? Add to ...

Spring is like the playoffs for Canada’s big banks and other mortgage lenders. It has the strongest competition of the year.

Sometimes, you’ll see a lender try to get an early start on spring with advance promotions. But this year, the industry has put the freeze on mortgage mark downs. Until now.

Ontario’s largest credit union, Meridian, has broken the ice by launching a 1.99 per cent 18-month fixed. Yes, it’s an oddball term at one and a half years, but it’s also currently the lowest lender-advertised rate in Canada, according to data from RateSpy.com.

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Meridian offers decent flexibility with 20 per cent prepayment options, portability and a mortgage that you can switch to a new lender with minimal cost (ask for their “standard charge” mortgage if this is important to you).

But like all big rate sales, this 1.99 per cent feature is not without caveats. For example:

  • It’s available in Ontario only.
  • It’s good for purchases and transfers only (a transfer is where you move your mortgage to a new lender without changing anything, except the rate and term).
  • It’s not available on refinances or non-owner occupied properties.
  • You must close by April 30, 2017.
  • The maximum property value is $1-million.
  • You cannot early renew.
  • The maximum amortization is 25 years.

Meridian’s rate is meant for financially stable borrowers who need short-term financing or can stomach the risk of rate hikes come renewal in fall 2018. By then, Trump’s economic stimulus might be fuelling higher rates (even in Canada), so you’ll want to weigh the risk versus reward.

The risk is that rates jump over one-half a percentage point in the next 18 months. If that happens, you’d likely save more in a longer term, especially if you snagged HSBC’s industry-leading 2.35 per cent five-year fixed and didn’t break your mortgage early. (When you break a five-year mortgage, especially at a major bank, the penalties are not pleasant.)

If you’re hoping for even lower rates, you’ll find a slew of brokers offering variables below 1.99 per cent. But, due to quirky mortgage rules, you need less than 20 per cent equity or more than 35 per cent equity to get them. And sub-1.99 per cent rates not available on refinances.

No matter how you slice it, Meridian’s 1.99 per cent spring special is piping hot. Now we’ll see if it inspires other lenders to raise their games.

Given it's just a regional promotion, and with lenders protecting their profits after recent regulatory changes, there’s a good chance it won’t.

Robert McLister is a mortgage planner at intelliMortgage and founder of RateSpy.com. You can follow him on Twitter at @RateSpy

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