The move has prompted some concern about a “race to the bottom” with other banks lowering mortgage rates to remain competitive. Finance Minister Jim Flaherty worries that Canadians are taking on too much debt and that lowered mortgage rates will only encourage people who cannot afford to invest in real estate to buy.
In a statement, Flaherty emphasized his previously announced measure to lower the maximum amortization period from 30 years to just 25 in an effort to prevent Canadians from taking on too much debt. This means home owners will have to make highly monthly payments, and will discourage first-time homebuyers. The hope is to prevent a mortgage crisis like the one seen in the United States in recent years.
Despite concerns about BMO’s move to lower its mortgage rates in Canada in 2013, it does not look like other banks are following suit for the moment. TD and CIBC, for instance, have stated that their mortgage options are competitive enough and they have no plans to lower their rates.
Since household debt is at an all-time high, BMO’s lower mortgage rate may not have the desired effect of stimulating the housing market.
What does this mean for homebuyers?
What this means for home buyers is that while rates will be lower, there will be less time to pay off the mortgage.