Hurry – cut price mortgage deals end today!

The clock is about to strike midnight for mortgage rates that have been the best deal of the past half century — at least as far as the major banks are concerned.

Bank of Montreal’s recent cut-rate 2.99% five-year fixed closed mortgage is set to expire today and, not surprisingly, competitors have already signalled they are ready to raise rates in the wake of the sale ending.

Royal Bank of Canada and Toronto-Dominion Bank were the latest to do so, announcing they had ended their offer of a 2.99% rate on closed four-year mortgage. Bank of Nova Scotia had quietly been telling mortgage brokers last week that it had planned to do the same.

“Some second-tier lenders have also raised their rates,” says Rob McLister, editor of Canadian Mortgage Trends. “You can see the timing [of the latest increases]. It is the day after the BMO rate expires. Typically when a bank puts out a posted rate it takes effect the next day but they’ve given it a lead time here.”

Royal Bank and TD said their rate increases are effective March 29. Both banks will raise the rate on their special fixed rate offer on a four-year closed rate by 50 basis points to 3.49%. The banks also raised the rates on a five-year closed variable rate mortgage to 20 basis points above prime.

Mr. McLister said the delay in raising rates could create a sense of urgency among consumers as they try to get themselves pre-approved for a mortgage which allows them to hold a rate for anywhere from 90 to 120 days.

“We have definitely seen increased volumes in inquiries and it seems like it has front-loaded action in the spring housing market,” he said.

It was almost three weeks ago that BMO triggered another round of mortgage rate wars with its 2.99% rate — the same product it offered in January. Critics complained the deal included restrictions like a 25-year amortization and limited prepayment privileges.

While the Banks are raising rates, smaller lenders like credit unions continue to offer five-year rates below that 3% threshold on five-year mortgage.

For the banks, it was inevitable that they would raise rates given rising governing bond yields which are generally used to price mortgages.

“It does look like the tide has turned on the bond market,” said Doug Porter, deputy chief economist with Bank of Montreal, adding it is pushing consumers to lock in rates. Bond yields have climbed about 50 basis points in the past two weeks on the five-year government of Canada bond.

Mr. Porter cautioned that the bond market has been hard to predict in the past so he can’t rule out market conditions changing yet again. “We’ve had a number of selloffs over the years in the bond market and the bull market has come running back with a vengeance so you never want to say never. It does seem like things have shifted,” he said.

It’s still unclear what it will mean for the spring housing market which could get a boost from low rates and early warm weather.

“Historically when potential buyers get a whiff that things may be shifting on the interest rate landscape, it often pulls anybody on the fence off of the fence,” says Mr. Porter.

Source: Garry Marr, Financial Post

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