Yeah the BOM one is a no frills mortgage, but there are key points about it that make it very significant.I believe there are conditions on the mortgage. For example, I don't believe you are allowed to pay down earlier on these. Not that the rate still isn't great but they make sure they get their interest for the whole term of the loan. At least, that is what they suggested on the National yesterday.
1) It may be a no frills mortgage, but it's an actual advertised rate, right on their website. It's not a broker-only thing or something like that. Actually advertising 2.99% means that consumers are aware, and will use that as a starting point for negotiation for other mortgages at the big banks and at the smaller lenders too. It's no surprise that TD and RBC quickly dropped their rates to follow. Theirs are only 4-year, but they're regular mortgages AFAIK, not no frills.
2) If a big bank is offering a no frills 5-year mortgage for that rate, you can be sure that a smaller lender (like an insurance corporation or a mortgage-only lender) will offer a regular mortgage for about the same rate, or maybe 3.09% or something.
3) Although rate decisions are made for various reasons by banks, and a lot of it has to do with the low bond yields, banks are probably factoring in the expectation that rates are going to stay low for quite some time. I guess more are buying into the belief that we'll continue to have such low rates into 2013 (which would be great for me) before really starting to rise.
4) The vast majority of people don't pay down their mortgages early anyway. If you know you're going to stay put, and you're one of the many that doesn't intend to pay down the mortgage early, having a no-frills mortgage isn't that much of a disadvantage. I personally do need flexible payment options because I pay things early, but I'll only pay so much of a premium. Most are similar. So, while I'd be willing to pay 0.1% or maybe even 0.2% higher for those early payment options, I won't pay 0.4% more, hence the necessity for BMO's competitors to stay close to that 2.99% rate.