Bank of Montreal has once again lowered its five-year fixed mortgage rate to 2.99 per cent, from 3.29 per cent, a move that could cause more downward pressure on rates at a time when they're already defying expectations.
BMO's rate is not the lowest in the market, but it is the lowest that's currently available from the country's biggest banks. BMO sparked a mortgage price war among the banks when it first introduced its 2.99 per cent five-year-fixed rate in early 2012. That rate also earned the bank a lecture from then-Finance Minister Jim Flaherty, who had been taking steps to curb growth in the housing market amid fears that a bubble could be forming. BMO has repeatedly brought the rate back since then, most recently this March.
Mortgage rates are lower than expected, which is much of the reason why the housing market has been stronger than expected this year. At the start of the year economists were predicting that five-year fixed rates would creep up. But instead they fell. Rates as low as 2.88 per cent are now available from smaller lenders, according to Ratehub.ca.
Five-year fixed mortgage rates tend to roughly track yields on five-year government of Canada bonds, because those influence the cost of the funds that the banks obtain to lend out.
"This rate change is driven by the fact that bond yields have fallen and we are in what is another busy season for buying a home," Bank of Montreal spokesperson Paul Gammal said Tuesday.
Yields on five-year government of Canada bonds ended last year at 1.95 per cent, and are now at 1.60 per cent. That's the same level that they were at in mid June, and they've dipped as low as 1.43 per cent since then.
Canadian bond yields tend to move in step with U.S. government bond yields, which in turn are influenced by the outlook for the U.S. economy.
Toronto-Dominion Bank chief economist Craig Alexander said in July that, while he can't predict exactly when, he's still expecting five-year bond yields and mortgage rates to creep up in the near future.
Low rates have caused the housing market to be stronger than forecasters had predicted this year, but mortgage growth industry-wide has generally slowed over the last couple of years. That has posed challenges for the banks, which have been seeking to assure investors that they will be able to maintain their growth.
"I think you have seen while the mortgage business has slowed as expected, given the regulatory and consumer change in preferences, I would highlight the agility of our business model as growth in consumer demographics shifts to deposits and investments…" CEO Dave McKay told analysts on a recent conference call.