Low mortgage rates remain despite government interference

It seems that not every member of the Conservative cabinet is a huge fan of Finance Minister Jim Flaherty's penchant for getting involved in the mortgage market.

According to a report from The Globe and Mail, Small Business Minister Maxime Bernier recently expressed his opinion regarding Flaherty's meddling in the world of mortgage rates. The verdict? Leave the market alone.

"Me, personally, I would not dictate to businesses what prices to decide," Bernier said. "It's the market. It's supply and demand that decides the prices. It is the case for interest rates, it is the case for other products too."

Of course, Flaherty has critics outside his party as well.

"We either have a competitive mortgage market or we do not," said Bob Rae, interim Liberal leader. "And it's clear to me that Mr. Flaherty would prefer to have a cartel where… he and his officials are setting the interest rates for every mortgage in this country."

The criticism being leveled at Flaherty is in regards to his asking both Manulife Financial to withdraw their discount on five-year mortgages, as well as complaining about the Bank of Montreal lowering it's five-year mortgage rates.

Of course, this is far from the first time Flaherty has made waves regarding the mortgage market. During the summer of 2012, Flaherty put in place the fourth round of mortgage restrictions in as many years. These included denying government-insured mortgages to individuals with less than 20 percent equity who had an amortization period longer than 25 years or a loan-to-value ratio higher than 80 percent.

Finding the best mortgage rates
It's easy to see why Canadian lending institutions are trying to compete by lowering mortgage rates. The interest on a home loan can be one of its greatest costs over the long run. A 30-year mortgage with a higher interest rate will cost more and take longer to pay off than one with a lower rate. However, regardless of the government's intervention in the mortgage market, there remain ways for borrowers to obtain lower rates.

A study from the Bank of Canada, Discounting in Mortgage Markets, shows that mortgage brokers are able to help borrowers get the best mortgage rates.

"Over the full sample the average impact of a mortgage broker is to reduce rates by 17.5 basis points," the study states. "Brokers are a significant factor, therefore, in driving discounts."

Brokers are able to do this by utilizing the network of lenders they have access to. Whereas borrowers who go at it alone are typically limited to the lenders they can access, brokers can tap into professional contacts to find lenders and home loans that specifically suit a client's needs. 

Apparently this is something first-time buyers have latched onto, as Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, told the Toronto Star that 40 percent of mortgages for new homebuyers are obtained through brokers. This is almost double that of the Canadian mortgage market as a whole.

Homebuyers aren't the only ones that can benefit from the low rates brokers can offer. Current homeowners looking to save can significantly reduce their mortgage expenses by refinancing with help from a mortgage broker.

The point is, no matter what type of meddling goes on in the mortgage market, lending remains a competitive business. For savvy buyers and owners, there will always be ways to find lower mortgage rates.

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