A steady housing market and low mortgage interest rates are prompting Canada's banks and financial institutions to launch innovative new mortgage products to lure consumers. The competition is good news for anyone who is about to buy a home or refinance their mortgage.

Two large Canadian banks recently launched subsidiaries to take dead aim at the country's lucrative mortgage market. Home Loans Canada, a division of CIBC Mortgages, is targeting niche markets such as first-time homeowners, new-home buyers, and self-build clients. X-CEED Mortgage Corp., a wholly owned subsidiary of the Bank of Montreal, was designed to serve clients who don't fit into the traditional borrower profile, such as those who are self-employed. The company began offering no-money-down mortgages in early February. Qualified purchasers can borrow 100 per cent of the real estate's value with no extra fees.

Last week, Scotiabank also introduced a no-down payment option for first-time buyers. The mortgage is designed for "people who don't have a down payment for a home and have excellent credit ratings and repayment capacity," the company says. The mortgages are insured by GE Capital Mortgage Insurance Company (Canada), to allow the customer to finance the total cost of the home as well as the insurance premiums. No-money-down mortgages are not available in the province of Alberta.

Scotiabank also introduced a mortgage that offers up to five per cent cash back on a seven-year term mortgage, and up to four per cent on a five-year term mortgage.

TD Bank and Canada Trust responded last week by launching the Deep Discount Mortgage, which features a first-year annual interest rate of 4.95 per cent, on five-, seven- or 10-year mortgage terms. Customers can take the discounted rate for the first year, to help them through the first year of home ownership when other unforseen expenses may arise.

The Bank of Montreal is offering customers an 18-year open term mortgage that has the same rate as the bank's five-year, fixed-rate mortgage. It provides the option of full or partial prepayments and early renewal at any time without interest penalty. Bank of Montreal says it is currently the only Canadian bank to offer customers this mortgage term.

A new player in the mortgage arena is Manulife One, from Manulife Financial. Manulife One consolidates the customer's debts into one account, including 75 per cent of the mortgage, credit cards and other loans. It also combines the chequing account, savings account and other income into a single multi-purpose account. The company says this saves clients money, because all the loans are now payable at a competitively low interest rate, and interest owing on the account is calculated daily, which means every dollar deposited immediately lowers debt.

Traditional Canadian lending institutions are also facing increased competition from mortgage brokers, who are taking advantage of the Internet in providing customers with new mortgage options. Last fall, a study by Canada Mortgage and Housing Corp. and the Canadian Institute of Mortgage Brokers and Lenders showed that almost one in three Canadian consumers use the Internet when looking for a mortgage, up from 25 per cent in 1999.

However, the survey said that only four per cent actually applied for a mortgage online. An earlier CMHC survey suggested that most existing mortgage-holders tend to renew with the same lender when the term of their mortgage expires, but increasing competition and Internet use may buck that trend.

For investors who want to take advantage of the booming mortgage market, this week CMHC announced it will soon begin selling Canada Mortgage Bonds.

Investors receive a fixed interest coupon bond with interest payments made semi-annually over the term of the bond, and repayment of principal on a specified maturity date. The bonds are backed by the Government of Canada. They will be issued in denominations as low as $1,000 and can be issued for any term, but CMHC says initial issues will likely be for a five-year term. They will be sold by investment dealers, banks, trust companies and other types of financial institutions.

Published: March 29, 2001

Use of this article without permission is a violation of federal copyright laws.

Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .