Canada's Condominium Magazine

Flaherty squashes mortgage rate competition

It didn’t take long. This morning, Manulife Bank announced that it would offer five-year fixed-rate mortgages at 2.89 per cent, ten basis points below BMO’s offering announced last week. By this afternoon, however, Manulife said it was pulling the cut-rate mortgage, which had been the lowest it ever offered.

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What happened?

Canada’s Finance Minister, Jim Flaherty, who will be bringing down a budget on Thursday, didn’t like what he saw. “I had one of my staff call them and indicate my displeasure,” Flaherty said, rather imperiously. For its part, Manulife said that after “consulting” with the Department of Finance, it had reverted to previous posted rates.

Last week, when BMO announced its 2.99 rate for a five-year fixed-rate mortgage, Flaherty said he expected the banks to engage in “prudent” lending, and not engage in a “race to the bottom.” Look what happened in the United States, he cautioned. But BMO didn’t flinch and that 2.99 per cent mortgage is still available.

So Flaherty is apparently claiming the right for himself to micro-manage the economy to the point of telling the banks what interest rates they can charge. The Oxford dictionary defines the word “arrogate,” the verbal form of the word “arrogant,” as “to claim (power, responsibility, etc.) without justification.” Perhaps the “justification” part of the definition is arguable in this case, for the banks occupy a unique position in the economy, but Flaherty’s action certainly smacks of blatant interference for blatantly political reasons. There is that budget coming on Thursday.

The leader of the NDP, Tom Mulcair, was quick to attack the minister for what he called “banana republic behaviour,” using political weight to push the financial institutions around when they are simply responding to market conditions in a totally legal way. Mulcair called the minister’s behaviour “absolutely unacceptable in a free and democratic society.”

Some argue, and this is likely what’s behind Flaherty’s move, that it’s dangerous to get into a mortgage at such a low rate when that rate must inevitably rise. What if the mortgagor can no longer afford the payments when the rates go up? What if that happens to a lot of people? Won’t we then have a crisis of delinquent mortgages, just like they did in the US?

The notion that individuals in a free economy have the right to look for the best possible terms when they buy, and vendors the right to compete for business, seems to be getting lost here.

Mortgage shopping

For anyone looking for a mortgage these days, especially first-timers, there’s good advice to be had in many places, including CMHC. Shopping for a mortgage can be a little intimidating, but if you do your homework and find out what’s available, you can minimize the discomfort. Above all, you want to feel that the person you are talking to—whether it’s a mortgage broker or the mortgage officer at the bank—understands your particular financial situation. There are hundreds of mortgages out there. You want the one that’s best for you.

They should ask you a lot of questions about your income, your level of debt, your spending habits, and whether these are likely to change within the term of the mortgage. And they should be forthcoming with explanations of the repayment options and other features. Generally, avoid a mortgage that seems to have unnecessary restrictions.

And remember, if you’re talking to a mortgage officer at a bank, he or she will not be keen to tell you about the competition’s products, so that’s where you need to inform yourself. The more you know, the better able you’ll be to choose what works for you.

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