The recent announcement that BMO has lowered its 5-year fixed rate from 3.09% to 2.99% has caused a flurry of speculation from market analysts and warnings from the federal government.

For the past year the Bank of Canada has been warning that high household debt levels, the bulk of which come from mortgages, are the largest risk facing the country’s economy. BMO’s recent rate cut prompted Finance Minister Jim Flaherty to issue a warning to the country’s banks that he expects prudent lending practices – not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States.

It’s clear that in our current market where homes sales have slowed and the spring buying market is kicking into gear, that competition is strong among lenders. Mortgage lending is a large part of their bottom lines.  Gord Nixon, CEO of Royal Bank of Canada, the country’s largest mortgage lender said in a conference recently, “There is no question that the Canadian banking industry is facing slightly slower growth as a result of slower mortgage demand.”

Lower rates could interest more buyers this spring, and might encourage some buyers to take out larger mortgages than they otherwise would. So, despite the government’s rule changes this past year, and despite its urgings to lenders, growing market share triumphs.

According to Canaccord Genuity analyst Mario Mendonca, BMO has been seeking to bolster its mortgage sales since it stopped using mortgage brokers about four years ago. It still has the lowest mortgage market share among the five largest banks.

The interesting part of all this is that some lenders’ fixed rates are actually lower than what BMO has advertised – the difference is that BMO actually announced it. For the past month or so mortgage brokers have had access to rates trending down from 3.04% to 2.89% for 5-year fixed to 2.69% for 3-year rates.

Mortgage consumers should also look at BMO’s product and read the fine lines because there are restrictions, which, of course, are not advertised. They include the following:

1.  You only get 10%/10% prepayment privileges. many other lenders give homeowners the option to increase their monthly payments by 20% or more each year, as well as make lump-sum payments on the original mortgage in that same percentage range.
2.  You can’t skip a payment or access a mortgage cash account. Skipping a payment, should you need to, is not an option.
3.  You can’t transfer your mortgage to another lender until your term is up. Throughout your 5-year term, the only way you can refinance, transfer or payoff the balance of your mortgage, is if you stay with BMO while doing so, or sell your home. It’s not uncommon for homeowners to break their mortgages early.

While 2.99% offer may seem attractive at first, the product may not be the best one for your situation. Mortgage brokers can offer consumers similar and even lower rates, in a mortgage product that best serves the client.