Are Lower Interest Rate Coming?

Saw this on the Toronto Star, thought it was a Great Article

Bank of Montreal slashes 5-year mortgage rate to 2.99 per cent

Finance minister Joe Oliver says he was called in advance to avoid any angst such as that caused former minister Jim Flaherty, who rebuked the bank.

Federal finance minister Joe Oliver says he got a call from the head of the Bank of Montreal before it slashed its five-year fixed mortgage rate to 2.99 per cent.

This comes a year after Oliver’s predecessor, Jim Flaherty, publicly rebuked the bank for making the same cut amid rising concerns over household debt loads.

“Bill Downe, the BMO chief executive, called me to say what they were doing and why,” finance minister Joe Oliver told the Star Thursday.

Oliver, who succeeded Flaherty in the role a week ago, says he reminded the bank chief that Ottawa is focused on protecting taxpayers and reducing consumer indebtedness.

“I made the point that government is, over the longer term, reducing its involvement in the mortgage area, because we’ve focused on protecting taxpayers and reducing consumer indebtedness. Those are our overarching objectives,” Oliver said in a wide-ranging phone interview with Star personal finance columnist Ellen Roseman.

But when asked if he would intervene in BMO’s plans and ask it to raise its key mortgage rate, the finance minister said, “No.”

The government “will continue to monitor the market closely,” Oliver said in a separate statement issued by his office.

The bank declined to comment.

“Our conversations with any government are always confidential,” Paul Deegan, BMO vice-president government and public relations, said in a statement.

Ottawa has intervened in the mortgage market four times since the financial crisis of 2008, as record-low interest rates sent household debt load and real estate prices soaring.

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BMO, which made the cut late Wednesday, is the first big bank to lower the key rate below three per cent, a level that caused Flaherty to publicly address BMO in March 2013, saying he disapproved of the rate and discouraged other big banks from following its lead.

At the time, he said he believed in “responsible lending,” and said he was concerned such low rates would work against his attempts to slow the momentum in the housing market.

“This rate change is driven solely by the fact that bond yields have fallen and we are in what has traditionally been the busiest season for buying a home,” BMO’s Deegan said in an emailed statement.

BMO’s rate had been at 3.49 per cent before the move.

Other Canadian banks have also recently cut their rates — TD Bank reduced its four-year fixed-rate mortgage to 2.97 per cent earlier this month, while Scotiabank lowered its rates across the board while issuing a four-year special rate of 2.94 per cent.

Industry observers say BMO’s rate cut likely has more to do with falling bond yields and the bank’s efforts to gain more mortgage market share than it does with Flaherty’s departure.

“We’ve seen bond yields drop over the past six months so it’s a reflection of their cost of funds lowering,” said Kelvin Mangaroo, president of online comparison site “And, secondly, we have the big spring home buying season coming up, so it’s a push by them to gain some market share over the next few months.

“I don’t think Flaherty leaving is a factor,” Mangaroo said. “I think Flaherty was just a coincidence.”

The big banks are also facing increased competition from alternative mortgage suppliers, he added.

“We’ve had mortgage brokers offering 2.94 per cent for a few weeks now,” Mangaroo said.

The spread between BMO’s rate and a five-year bond is just 130 basis points, below the industry average of 150, another industry observer noted.

“It’s an aggressive move but it’s not surprising. Mortgage growth in general has been trending below the long-term average. The banks see the spring housing market as their best opportunity to pick up mortgage volume,” said Rob McLister, editor of online publication

The special BMO rate comes with quite a few strings attached, McLister noted.

One economist warned the banks are playing a dangerous game, as are homebuyers who jump into the market with home prices at record levels.

“This is short-term thinking,” David Madani, chief economist at Capital Economics Canada, said. “But it doesn’t change the long-term situation and that means the correction when it comes is going to be much more pronounced.”

The super-low borrowing rates are expected to be temporary, said Madani.

Bond yields have dropped in recent months, but with the U.S. economy improving and the Federal Reserve tapering its bond purchases, yields are projected to start rising again later this year, which should push up long-term rates.

Gardening Tips

When will the summer ever come. Are you one of those people who can’t wait to get into getting their flower and vegetable gardens done. Here’s some tips on Getting ready for your Spring Gardening

1. Get a plan

Before you put shovel to soil, you need to carefully plan out what you’re going to plant and where. If you don’t do this, you risk overbuying at the garden centre and/or putting plants in places where they won’t thrive or live. That’s a huge waste of money not to mention your time.

Planning means looking carefully at which areas of your garden get what exposure to sunlight, and what kind of soil you have. Canadian gardening guru Marjorie Harris encourages gardeners to start by making a “map” of their gardens.

2. Divide and conquer

If you don’t like where a tree is, move it. Or if that rosebush at the side of the house is looking sad and neglected, just shift it to a different place where it might thrive and get gorgeous. Dividing your perennials should be at the top of your gardening list—it’s the best way to make the most of your plants.

3. Think perennially

Planting annuals every year can be expensive and a lot of work. Sticking to perennials (especially in your flower beds) will save you money and time. Save the annuals for your planters and pots (you won’t need to buy as many that way).

4. Get seedy

Seeds are by far the cheapest way to buy your plants. Seasoned gardeners will germinate their seeds indoors in the weeks leading up to planting time. If you don’t have the space or time for that, there are plenty of seeds that are easy to plant directly in the soil.

5. Grow your own food

My favourite summer moment involves biting into that first ripe tomato picked right from my own garden. Growing your own food is one of the best ways to put your garden to work and save money on groceries all through the summer months.

With You Every Step Of The Way

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