It’s enough to give even the hardiest brokers indigestion, but BMO’s re-introduction of that 2.99 per cent on a five-year fixed is a direct call to mono-lines to match that offer – not just on rate, say brokers, but on term.
“In my book it’s a sign of desperation and a sign that they’re trying to gain market share,” John Dearin, owner of Dominion Lending Centres Mortgage and More, told MortgageBrokerNews.ca. “That said, I’ve already had a client fax me the BMO offer and ask ‘What can youI do?’
“The mono-lines need to step up to the plate on this one and match that rate but also the five-year term to help out the brokers. If they want us to stick with them, they have to support us brokers.”
That challenge echoes BMO’s.
The big bank trod out the offer, in effect until March 28, late Wednesday, dangling the same no-frills options as its record-setting offer in January; i.e., 25-year amortization and limited prepayment terms.
Industry criticism of those restrictions aside, said BMO’s head of Canadian retail operations, no lender effectively matched its five-year term in January.
“They matched us on the rate, but on a four-year term,” Frank Techar told reporters Wednesday. “We offered one more year of protection against rising rates. To be really clear, none of them matched us back in January.”
Almost all of Canada’s other big banks are expected to pick up that gauntlet by the end of the week. TD was among the first to move, but with 2.99 on a four-year.
The question for Dearin and other brokers is will the mono-lines follow suit with more a longer term than that..
“I believe they will,” he said, within hours of this latest announcement. “One has already matched the rate and we expect another to match the rate and the term.”
Even if they don’t BMO’s move to reignite the rate wars may pay off for brokers. It did in January.
“I didn’t lose a single deal to BMO because of that rate, but it did prompt a lot of clients who were sitting on the fence with preapproval to get off the fence and to make the purchase,” Ray McMillan, a broker with Home Mortgage Consultants Inc. in Mississauga, told MortgageBrokerNews.ca. “I stop short of thanking BMO, though.”
He’s not alone, with several brokers having reported relatively brisk demand from preapproved and new clients following the big bank’s introduction of its no-frills five year fixed, offered at the lowest rate in Canadian history.
The returns for BMO may have been more meagre.
While BMO saw its overall profits spike by 34 per cent in the fourth quarter – and during its January offer -- much of that growth came courtesy of U.S. operations and lower losses on bad loans.
Profit from its Canadian book actually shrank, with higher volumes across most products “more than offset by a less than favourable mix and lower net interest margin.”
That’s perhaps the most concrete analysis the bank is willing to offer on the success of its special January rate. Analysts are suggesting that limited-time offer – 2.99 per cent on a five-year fixed – likely helped to grow BMO’s mortgage market share in the first quarter, but at the expense of profitability, in that it further narrowed interest rate spreads.