Home loans are once again getting cheaper in Canada

A house built in 1930 that was recently listed for sale for $2.398-million is seen in the Point Grey neighbourhood of Vancouver, B.C., on Friday January 29, 2016.
A house built in 1930 that was recently listed for sale for $2.398-million is seen in the Point Grey neighbourhood of Vancouver, B.C., on Friday January 29, 2016. THE CANADIAN PRESS/Darryl Dyck

Mortgage rates are once again falling in Canada as lenders gear up for the spring selling season, a development that could well stoke already overheated housing markets in Vancouver and Toronto.

Meridian, one of the country’s largest credit unions, introduced a fixed-one year rate of 1.69 per cent for Ontario customers Tuesday, down about a tenth of a percentage point from the next best offer in the market.

“[That] would be the nation’s lowest widely advertised mortgage rate, as of today,” Robert McLister, founder of rate comparison site said.

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The move comes after some of the country’s biggest lenders attempted to shift prevailing market rates higher in early January. RBC, the country’s biggest bank, lifted its special five-year fixed mortgage offer by one-tenth of a point to 3.04 per cent on Jan. 8.

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“That move motivated a host of competitors to follow RBC’s lead,” McLister said. But since then, most fixed rates have dropped at least 10 basis points, or 0.1 per cent, he said, as bond yields have fallen and lenders compete more aggressively for business.

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“Meridian is going against the trend set by banks,” Bill Whyte, head of member services for the credit union said.

The drift lower in interest rates runs counter to what policy makers are hoping for. The Bank of Canada stood pat on cutting its trend-setting rate last month partly on concerns the move could further over-leverage households already contending with record debt loads.

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For potential borrowers willing to take the plunge, experts suggest reading the fine print carefully.

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Low rates on short-term loans are often used to get borrowers in the door. A higher rate is usually offered at the end of the term, while switching to another lender could be costly.

“Promotions are usually designed so that the lender captures higher [profit] margins on the renewal business,” McLister said. “It’s well known that borrowers are sticky once they sign with a new lender.”

Retention rates are over 80 per cent at most lenders, he said.

“That’s largely because very few people enjoy re-applying, collecting documentation, reading contracts and signing everything all over again, especially when they just got a mortgage 12 months ago.”

The lowest fixed rate on record was 1.49 per cent, also offered by Meridian late last year.

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