WATCH: Will the big banks follow suit now that one mortgage lender is offering a three-year, variable rate mortgage for 1.99 per cent? And, will the federal government do anything to intervene. Robin Gill reports.
TORONTO – The mortgage market was abuzz Tuesday after Investors’ Group offered a rate well below the current standard of around three per cent.
The financial services firm posted a 36-month closed, variable-rate mortgage at 1.99 per cent, which is also well below the 2.99 per cent level that drew sharp criticism from former finance minister Jim Flaherty when BMO first tried it, because he was worried it would trigger a damaging housing bubble.
“When somebody comes out with a rate like this it gets people talking about mortgages, it heats up the market and it brings a lot of press to Investors’ Group, which I think is what they were looking for,” said Kerri-Lynn McAllister of RateHub.ca, a company that tracks mortgage rates.
“It’s the lowest rate on the market right now, and the lowest rate we have on record since April/May 2010, so I think it will create a splash similar to the BMO 2.99 per cent mortgage rate.”
It’s also likely to bring Investors’ Group new clients, McAllister said, because even though the firm isn’t as well-known for its mortgage business, Canadians are always looking for the lowest rate, regardless of where it comes from.
Peter Veselinovich, vice-president of banking and mortgage operations at Investors’ Group, said the company decided to post the rate Monday because it had “an abundance of money available for certain terms” which it decided to put out to current and potential clients.
“It was a block of funding that we have in place and we’re going to take advantage of that to let people know that Investors’ Group also does mortgages,” he said.
But Veselinovich stressed the rate isn’t mean to get people into financial situations they shouldn’t be in, or impact the market.
“Our focus is on that overall financial plan and that’s the umbrella under which we do everything,” he said.
Like with any other product, when it comes to the three-year mortgages, Investors’ Group will “make sure that it’s the right product for the people and that they can afford it and have the appropriate cushion.”
One condition attached to the rate is that you can’t break the mortgage unless you sell the property for the three-year period.
Joe Oliver, who took over as finance minister from Flaherty earlier this year, had said in the past he had no plans to intervene in the setting of mortgage rates, calling it a “private” decision by lenders.
But on Tuesday he noted that the government had “taken action in the past to reduce consumer indebtedness and the government’s exposure to the housing market.”
“I will continue to monitor the market closely,” Oliver said in a email statement after the rate was posted.
Before Investors’ Group announcement this week, the latest lender to make waves had been Royal Bank, when it lowered its rates on several fixed-rate mortgages by 10 basis points in January, bringing its five-year closed rate to 3.69 per cent. It now sits at 4.94 per cent, while the variable five-year rate is at three per cent.
RBC said at the time the rates were lowered to match competitor pricing, and several other big banks followed suit.
As of Tuesday, Investors’ Group had the lowest three-year rate. The next lowest rate for a variable three-year rate from one of the banks came from Laurentian Bank at three per cent.
For the more common five-year variable rate, Scotiabank offered 2.60 per cent, while BMO, Royal Bank, TD, CIBC, Laurentian and National Bank all stood at three per cent, according to RateHub.