The knockout

How gnarly has the mortgage business been lately? Well, you’re about to find out. Crazed, desperate money lenders are stripping to their skivvies, and Rutting Season 2019 is about to be gassed with interest rates you haven’t seen Stephen Harper.

Days ago we told you about HSBC’s 2.99% five-year, fixed-rate home loan – which is about half a point lower than the other banks. If that mortgage were a guy, we’d be talkin’ toxic masculinity. But wait, this pales in comparison to what Ontario’s biggest credit union has just unleashed upon the market.

Meridian’s new two-year fixed-rate mortgage is available for new borrowers at…ta-da… 1.98%. Compare that with what the Big Banks are charging for the same term (3.29%) and you can see what a ballsy, alpha-male move this is. In fact, Meridian is lending out mortgage money for less than it costs the CU to get it (via GICs from depositors). Yes, insane. It won’t last. But it throws fuel on the mortgage war that is just erupting.

The Meridian mortgage is for up to $1 million, for owner-occupied digs only, not available for refinancings and you have to live in Ontario to get it. So think about a typical GTA mortgage of $500,000. At the current bank rate that would cost $2,441 a month. With the Meridian masher, that falls to $2,100. So, almost $350 a month less for two years, or $8,400. You might even buy a used Kia for that!

By the way, Meridian (like Vancity and Coast Capital) also lets people have group mortgages (bad idea), plus you still have to pass the stress test to get approved (and be able to afford payments at 5.34%).

And while this mortgage offer is designed – like a financial blogger with chiseled abs and an epic bottom – to garner attention, there are further implications. First, it’s a major escalation of the mortgage war and will help push the banks into cheapo offers over the next few weeks. Despite a tumbling of bond rates the big guys have been reluctant to drop the cost of their borrowings (lower spreads hurt the bottom line) but now with 2.98% five-year and 1.98% two-year money available, there’s little choice but to gear up for battle.

Second, this kind of rate warfare takes pressure off the Bank of Canada. The central bank doesn’t need to contemplate reducing its policy rate if commercial lenders are doing the job of stimulating the economy for it. The latest GDP numbers showed the economy is cooling quickly, despite robust job growth, so this kind of on-the-street monetary stimulus is welcome.

Third, what a gift for Mr. Socks. Just as the Lavalin-JWR-Philpott-Butts-McCallum mess was deepening, there’s a new shiny thing to distract the moisters. Cheap money! Come & get it!

Fourth, the rate slash is nicely timed for the Bill Morneau budget next Tuesday. I hear that over the last couple of weeks revisions have been made to increase spending (drugs, pensions, kids) to hike corporate competiveness (building on last autumn’s tax changes) and, of course, to reboot real estate. The Millennial homebuying plan will bring back 30-year amortizations for CMHC-insured mortgages, reducing monthly payments (and increasing the amount of interest paid), and likely include a new tax credit to help closing costs. Apparently no diddling to the stress test, which may happen later in 2019 and come from the bank regulator, OFSI.

So there you go.

Mortgages at 1.98%. Back again. Thirty-year mortgages. Making a return. Buyer incentives. Just like in 2016. The central bank backing off its rate-hike agenda. Cheaper detached houses in the major markets. And it’s spring. Green stalks thrusting lustily through the virginal snow, confident, cocky and unstoppable. For untold ages this has been the moment of rebirth, embrace, flow and creation.

Or, in this case, a mortgaged condo on the 18th floor.

* Sigh. *