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There is a case for more dramatic price adjustment further out if higher mortgage rates start crimping affordability, the Conference Board says.Fred Lum/The Globe and Mail

A Canadian lender has pushed mortgage rates to their lowest level in at least two years in a bold move to gain market share and publicity.

Investors Group cut its three-year variable mortgage rate to prime minus 1.01 per cent, or 1.99 per cent, on Monday.

It appears to be the lowest rate in the market, although it is not a record. "Variable rates, in general, have been below 2 per cent before," says Kurtis Elliott, a business analyst at For instance, five-year variable mortgage rates below 2 per cent were available in the spring of 2010.

Investors Group is taking a page from Bank of Montreal, which has dropped its five-year fixed rate to 2.99 per cent for short periods in each of the past three years.

Federal Finance Minister Joe Oliver e-mailed media a statement noting that the government has taken action in the past to reduce consumer indebtedness and the government's exposure to the housing market, and that he will continue to monitor the market closely. That's the same statement he gave in March after Bank of Montreal reintroduced its controversial 2.99-per-cent five-year fixed-rate mortgage.

In March, Mr. Oliver also suggested that he intends to take a more hands-off approach to the mortgage market than his predecessor did.

When Bank of Montreal and Manulife Bank dropped their five-year fixed rates below 3 per cent in the spring of 2013, former finance minister Jim Flaherty took them to task both publicly and privately, because he was trying to curb growing consumer debt levels. But when Bank of Montreal CEO Bill Downe called Mr. Oliver this March to say the bank was going to bring back its controversial rate, Mr. Oliver told Mr. Downe that his government wants to be less involved in the mortgage market.

The Finance Minister later told reporters that he would not be concerned if other banks followed suit, suggesting it was a private-sector decision. "There's a market, and the bank made its decision," he said.

The move on Monday by Investors Group is unlikely to be as controversial. That's in part because the government requires consumers who are taking out an insured mortgage of less than five years to pass a test that shows they could afford a five-year fixed-rate mortgage.

Mr. Flaherty imposed that rule on the mortgage market in 2010 in a bid to help prevent consumers from taking on more mortgage debt than they can afford. The rule means that consumers who buy a mortgage at 1.99 per cent from Investors Group, and who don't have a down payment of at least 20 per cent, must effectively qualify for a mortgage at a rate of 4.99 per cent.

Bankers at other lending institutions say that Bank of Montreal's 2.99 rate, which has now expired, was successful in attracting more customers to its branches. But they point out that mortgages differ on more than just rates.

For example, the 1.99 per cent mortgage from Investors Group has restrictions around the customer's ability to break it before the term is up. "You're not allowed to refinance, for example, you're only allowed to remove yourself from the mortgage if you sell the property," said Alyssa Richard, CEO of

"The bigger thing is that the company just doesn't have the infrastructure set up to handle a massive influx of customers," she added. "We had someone call today about a $800,000 mortgage, and they said, 'We'll get back to you in two to three days.'" Investors Group currently has about 1 per cent of the Canadian residential mortgage market, said Peter Veselinovich, vice-president of banking and mortgages at the company.

"We thought this was an opportunity to help spread the word" about Investors Group's mortgages, he said.

Bank of Montreal had the smallest market share in mortgages of its big-bank competitors when it introduced its 2.99-per-cent five-year fixed rate.

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