BMO slashes 5-year mortgage rate to 2.99%

Ah, Spring. That glorious time of the year when temperatures begin to rise and mortgage rates fall.

Bank of Montreal is leading the way again this year. The bank announced Thursday it is slashing its five-year fixed rate mortgage to 2.99 per cent, down from 3.49 per cent.

Martin Nel, BMO's vice-president of personal products, describes the new mortgage offer in a release issued by the bank as “the responsible choice” for homebuyers, noting, with a maximum amortization of 25 years, it “can help Canadians become mortgage-free faster.”

To no one's surprise, Ottawa is not amused. The new Finance Minister Joe Oliver made it clear to media he shared a will to limit the government's exposure to the housing market with his predecessor, Jim Flaherty.

It was this same time last year BMO tried a similar maneuver, announcing a 2.89 per cent mortgage offering. Other banks quickly followed suit, only to send the rates back up above three per cent mark again under considerable pressure from a distinctly unhappy Flaherty.

“My expectation is that banks will engage in prudent lending—not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States,” he said at the time, according to Canadian Business magazine.

BMO held to its low rate for a month, to the minister`s obvious displeasure. But Manulife Bank, which had been part of the short-lived mortgage-rate shake-up, took less than a day to back off, issuing a contrite release that indicated just how tough Flaherty had been willing to play.

“Manulife Bank agrees with the government that Canadians shouldn’t take on more debt than they can handle," a bank spokeswoman told The Globe and Mail.

It was the fourth time since 2008 Flaherty took such deliberate measures to quell a mortgage-rate war and slow the housing market.

With Flaherty now out of the picture, all eyes are on Oliver.

So far, the minister appears unwilling to raise his fists, coolly noting he will continue to monitor the market closely. But he didn`t exactly rule out the possibility of a fight.

"Our government has taken action in the past to reduce consumer indebtedness and the government's exposure to the housing market," Oliver said in an emailed statement to the Canadian Press.

BMO, for its part, has flatly denied the timing of this latest mortgage offer has anything to do with testing a new minister. Oliver took the job earlier this month following Flaherty`s resignation after eight years in the top financial post.

Paul Deegan, vice-president, government and public relations with BMO Financial Group, told the Financial Post the move was “driven by the fact that bond yields have fallen and we are in what has traditionally been the busiest season for buying a home.”

It`s likely no accident the bank`s economist department released a chart that predicts low mortgage rates aren`t likely to be around for long, “suggesting it might be a good time to thinking about locking in your mortgage”

The authors said declining Canadian mortgage rates reflect the rally in bond markets this year.