Is Your Mortgage Renewal Nearing?

(March 27, 2014 )

This article was in the Financial Post today, March 27, 2014.

Banks are battling in a new round of mortgage rate wars, but it’s the same old terrain
The banks may finally be ready to battle over mortgage rates but the war for customers has been raging for months now.
Falling bond yields, which long-term fixed rate loans are priced off of, had already allowed discounters to cut rates well below the 3% threshold that makes finance officials in Ottawa nervous.The fear is low rates will just ratchet up the market even more when it really needs to just cool down a bit.But Gregory Klump, chief economist with the Canadian Real Estate Association wonders whether it will have an impact at all given many consumers have already adjusted to low mortgage rates.“Were these not already available in the marketplace?” said Mr. Klump, about five-year closed fixed rate mortgages available for sub 3%. The site ratesupermarket.ca lists the lowest rate available at 2.94% for that term.Bank of Montreal officially entered the fray this week with a 2.99% closed five-year fixed rate mortgage, a decline from 3.49%. The battle to the bottom among banks had drawn the ire of former Finance Minister Jim Flaherty with Manulife Financial Corp. even pulling its 2.89% offer after being rebuked by finance officials.This time out it appears BMO gave new Finance Minister Joe Oliver the “heads up” that it planned to lower rates. The finance minister said in an emailed statement that he continues to monitor the situation.While BMO is no doubt trying to steal market share from other banks, part of the reason it is able to lower its rate has been falling bond yields.“Canadian mortgage rates are once again on the decline, reflecting the rally in bond markets this year,” said Sal Guatieri, an economist with Bank of Montreal.Those low rates are now key to keeping the housing market on its current footing with CREA suggesting in a recent forecast they will edge up only slightly in the coming months.“The housing market is entirely depending on the continuation of low interest rates,” said Mr. Klump, whose group has predicted sales will jump about 1.3% this year. “It’s all from an affordability standpoint and people being able to support those monthly payments.”CREA says the average price of a home will hit record heights in 2014 as it forecasts average prices to rise 3.8% to $397,000.Mr. Klump doesn’t think the banks entering the fray will have much of an impact on the marketplace and says it’s more a “look at me” attempt to lure consumers. “It’s important from a marketing standpoint than further juice to the housing market.”If you take a close look at the latest BMO product it continues to have the same flaws that critics pointed out the last time it was introduced. For one, it only allows annual prepayments for up to 10% of a mortgage when most loans allow 20%. More importantly, the mortgage ties consumers to BMO because you cannot leave the bank or the mortgage without selling your home.“There are cases where you might want to break the mortgage, maybe you want to renegotiate the rate,” said Rob McLister, editor of Canadian Mortgage Trends. “The fact is you can get the same rate elsewhere without the same sort of restrictions.”The battle from BMO comes at the height of the spring market which may also be goosed by the premium increases for mortgage default insurance which kick in May 1. Canada Mortgage and Insurance Corp, raised its rates and competitors soon followed.For someone with a mortgage for 95% of the value of their home, the premium goes from 2.75% to 3.15%. On a $450,000 mortgage, the fee — it is charged up front and often tacked onto the mortgage, would rise from $12,375 to $14,175.