The bank that rocked the market with its “2.99 no-friller” announced Tuesday it will be raising the rate on its five-year, fixed-rate mortgage to 3.79 per cent from 3.59 per cent, widening the competitive edge brokers enjoy through monolines. At least for now, say industry players.
“In the meantime, until everyone jockeys up it will give us a bit of an advantage,” John Panagakos of Dominion Lending Centres Home Financial told MortgageBrokerNews.ca. “BMO is affected by the bond market, as is everyone else, and it depends on the spread and it does give us an advantage.”
The bet is that monolines – likely less affected by the recent capping of government guarantees for mortgage securitization at CMHC – will be able to hold off on raising rates a little longer than the big banks.
“Some monolines can squeeze their spread because they have less overhead,” Panagakos said. “Monolines can live with a little less spread than the banks; it depends on each lender’s target spread and because monolines are more efficient, they can take less spread.”
Earlier this year, BMO offered a five-year mortgage rate at 2.99 per cent, which, at the time, was viewed as a bid to gain a leg up on the competition. That gambit may have cost the bank money, which may have led to the recent hike.
“Banks’ year-ends are coming up October 31, so they are in the fourth quarter,” Panagakos said. “They may have lost money in the first and second quarters and now they’re trying to make that up. With banks and lenders, it’s flavour of the month; they’ll make changes and then go back on them.”
No word yet whether the other big banks plan on raising their rates. But if they do, brokers may enjoy an even larger competitive edge.
“Most likely the other banks will follow suit,” Panagakos concluded.