There's something a bit frantic about the way lenders are competing on mortgage rates as the spring home-buying season begins.
Isn't it great?
There's often a disapproving tone to media coverage of lenders competing on rates. Typically, the rate is juxtaposed with a mention about the high levels of household debt, as if banks are causing this problem by slashing rates.
That's wrong. Banks are part of the debt problem because they flog borrowing products like they're bread, milk or French fries. Would you like a side of credit line with that mortgage, Mr. and Mrs. Client?
On rates, we should welcome banks and other lenders fighting it out to cut rates. Frankly, it's the only thing home buyers have going for them as prices heat up in some cities.
Quite a big deal was made last month of Bank of Montreal's offer of a 2.79-per-cent five-year fixed-rate mortgage. That's old news now.
Toronto-Dominion Bank has been advertising a 2.74-per-cent five-year rate, and alternative lenders accessible through mortgage brokers have slightly lower rates.
And then there's the Ontario credit union Meridian, which is offering an 18-month fixed-rate loan at 1.49 per cent that it calls the "lowest known posted mortgage rate in Canadian history."
A credit union offers a fabulously low mortgage rate, but for an obscure term that doesn't seem to exist elsewhere (not on the mortgage rate comparison websites I checked, anyway). That's taking rate competition to a new level, and good on Meridian for doing it.
No one criticizes gas stations or grocery stores for beating each other over the head to get prices down and attract customers. So what's the problem with banks and other lenders doing it with mortgage rates?
True, low rates are directly responsible for the state of the housing market today. They've pushed up prices well ahead of incomes, turned detached houses into luxury goods in some cities and been a prime contributor to alarmingly high household debt levels.
But that's not the fault of lenders. We get the interest rates our economy deserves.
With oil prices way off their highs of last year, the economy may well turn out to have stagnated in the first quarter of the year. Six years after the last recession, we still haven't hit our stride and interest rates reflect that.
Banks and other lenders aren't entirely blameless in their mortgage policies. They use affordability measures designed to assess the risk that clients will default on their mortgage payments, not whether they can carry a mortgage and life's other costs.
Even in today's go-go housing market, buyers can be unnerved by how much mortgage their bank is willing to give them.
Judged on rates alone, lenders have been greedy more than profligate. Most still haven't gotten back to the prerecession levels of discounting on fixed-rate mortgages, and indeed the pricing of five-year fixed-rate mortgages looks a little high in relation to what's happening in the bond market. Bond yields have a big influence on mortgage rates.
House prices seemed this winter to be cooling in cities other than Vancouver, Toronto and Hamilton, but early March numbers suggest a rebound. Calgary's got problems, but sales in cities like Montreal and Winnipeg were reasonably strong. March in Montreal was the busiest month in the past two years.
That's the recent mortgage rate cuts in action.
Will the government try to cool things off if sales and prices keep rising?
Prime Minister Stephen Harper said last month that the government was monitoring the market, but not planning any immediate action.
Quietly, the federal agency 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.
If housing has to be cooled, this is the way to do it.
The wrong way, tried in previous years, is for the government to try and bully the banks into pulling back on mortgage rate competition. All this does is simply makes housing more expensive for borrowers not savvy enough to access alternative lenders through a mortgage broker.
As for those alternative lenders, they're competing hard on rates, too. You can get a five-year mortgage at 2.49 per cent or lower, if you're willing to forgo a pre-approval and don't intend to make any big lump sum prepayments.
That's life in this low-rate world we live in. Isn't it great?
Mortgage Wars
Here's a selection of mortgage deals being offered for the spring home buying season:
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
Five websites for comparing rates:
Rob Carrick