PLEASE. . Exercise care before jumping into "new" 2.99 Percent mortgages

[MortgageQueen]

If you haven't already heard, BMO was the first to offer a 2.99 percent 5 yr. fixed mortgage and while this "sounds" fantastic, I urge people to carefully look at all the details (especially if you're re-financing)

The POSITIVE side is: if it's your first mortgage and you will be choosing the 25 yr. amortization AND you will be staying in that home with no need to break the mortgage, it's a great product.

BUT as Cnd's drift further and further into debt (even MORE then Americans!!) it would be wise to consider an interest rate just a few decimal points higher in order to have the option of a lower amortization and other benefits, not offered with the 2.99 mortgage.

To explain: Take a $300k mortgage
With a 2.99 percent/25 yr amortization "special". . .at the end of 5 years you'll have paid:
$41466 in interest, $43625 in Principal, and end with balance of $256,374

With just a slightly higher rate of 3.29 & a 20 yr. amortization you've paid:
$44,504 interest, $57,752 in principal, and have a balance of $242,247. You just paid $14,127 more on your principal in just 5 years by only paying ".3 percent" more and shortening your amortization by 5 years.

Moral of the story? Instead of trying to make our "payments" as cheap as possible, take advantage of these historical low rates to BUILD FOR YOUR FUTURE. We don't know what's going to happen in the future with these VERY unsteady economic times. Think Smart. Pay down!

[Shwa Girl]

Good thread, Mortgage Queen.

I guess if someone goes for the 2.99% mortgage, and they intend to be agressive and pay as much as possible within the 5 years, this mortgage can work?

Of course they would need to make sure that they have money to cover emergencies and bills before paying extra on the mortgage, IMHO.

What do you think about this scenario?

[MortgageQueen]

Good thread, Mortgage Queen.

I guess if someone goes for the 2.99% mortgage, and they intend to be agressive and pay as much as possible within the 5 years, this mortgage can work?

Of course they would need to make sure that they have money to cover emergencies and bills before paying extra on the mortgage, IMHO.

What do you think about this scenario?

No they can't. That's the problem. Because of the rate being so low most banks are veryrestrictive on increasing your payment or putting anything down on your principal. And if you ever did break the mortgage you would get seriously slammed with a penalty. i'm talking thousands more then the average (already high) penalties now.

[NuCoupon]

Yes, prepayments/lump sump payments and very important in paying down a mortgage!

[Shwa Girl]

No they can't. That's the problem. Because of the rate being so low most banks are veryrestrictive on increasing your payment or putting anything down on your principal. And if you ever did break the mortgage you would get seriously slammed with a penalty. i'm talking thousands more then the average (already high) penalties now.

So this BMO mortgage does not allow for extra payments on the principal?

[MortgageQueen]

So this BMO mortgage does not allow for extra payments on the principal?

Yes they can make 1 lump payment of 10 percent a year but can only increase their payment by 10 percent. . .which is pretty insignificant.

In my experience, people tend to be MUCH more likely to increase their "payment" rather then lump sum.

BMO knows this. So offering only a 10 percent increase on payments effectively keeps all your interest payments in their pocket. . .

[Shwa Girl]

Yes they can make 1 lump payment of 10 percent a year but can only increase their payment by 10 percent. . .which is pretty insignificant.

In my experience, people tend to be MUCH more likely to increase their "payment" rather then lump sum.

BMO knows this. So offering only a 10 percent increase on payments effectively keeps all your interest payments in their pocket. . .

How sneaky of them.

So on a 200000 mortgate (example), BMO is allowing up to 20,000 extra to primcipal. After the 5 year term, someone can only pay up to 100000 of the mortgage, and hope for another great 2.99% deal.

This deals sounds as bad as the Zellers 50% off one item in December.

[ty & nessa's mom]

We just renewed our mtg. with Td at 2.99% over 4 years with no differnet restrictions than a normal mtg. We can prepay up to 15% per year and increase our bi-weekly payments up to 100%. We also upped the amount of our payments. For us it was the best possible scenario on a renewal.

[MortgageQueen]

We just renewed our mtg. with Td at 2.99% over 4 years with no differnet restrictions than a normal mtg. We can prepay up to 15% per year and increase our bi-weekly payments up to 100%. We also upped the amount of our payments. For us it was the best possible scenario on a renewal.

That's excellent! yes, some of the other banks are following behind BMO with the 4 year term with better options.

JUST KEEP IN MIND. . . if you break these type mortgages, the penalty is stiffer. if you don't have to break the mortgage, then you're golden.

[NuCoupon]

We're 2 years into my BMO 5-year fixed mortgage at 3.69. They allow 20% prepayment (of original amount we borrowed) annually plus you can boost your payments 20% annually as well. We thought this was great. At the time other banks offered us only 10% prepayment annually.

[bobbiegirl2010]

Speaking as someone who has made mistakes with renewing our mortgage and is now paying the price, I urge everyone to read all the fine print and know exactly what you are agreeing to. A mortgage is a huge contract to be signing with the bank that could cost 10's of thousands to break...

[NuCoupon]

How sneaky of them.

So on a 200000 mortgate (example), BMO is allowing up to 20,000 extra to primcipal. After the 5 year term, someone can only pay up to 100000 of the mortgage, and hope for another great 2.99% deal.

This deals sounds as bad as the Zellers 50% off one item in December.

I think $100,000 in 5 years is still pretty aggressive for some people, especially with kids, RRSPs, RESPs. I mean there's a reason these people have mortgages.

[tjthemanto]

So this BMO mortgage does not allow for extra payments on the principal?

From rate supermarket.ca

BMO Bank of Montreal Mortgage Rates Hit All Time Low With 2.99% 5 Year Fixed
January 13, 2012 by Kelvin Mangaroo



Bank of Montreal (BMO) shocked the mortgage market by dropping its Low Rate 5 year fixed mortgage to 2.99% effective today, January 14, 2012. It is a limited time offer that is available only until January 25, 2012.

This is the all time lowest fixed mortgage rate we’ve seen offered by a big bank, and is a fundamental shift in strategy in the market as big banks look to take market share by enticing customers with lower mortgage rates versus selling customers on their personal advice and the benefits of having all their products with one company.

TD mortgage rates also dropped today as they lowered their special discounted rate on the 4 year fixed product to 2.99% as well. Expect more of the banks to follow suit in the next few days.

2.99% 5 year fixed mortgage rates were offered by mortgage brokers late in 2010 but they have never publicly been offered by a major bank like BMO. ‘Publicly offered’ is the operative term here as bank mortgage specialists and the branches do have discretion to drop rates for certain clients.

These lower fixed mortgage rates have been expected as the benchmark government bond yields have headed lower in the past few months, and even dropped almost 3.4% today (Jan 13, 2012), while the banks have held their mortgage rates steady. This has given them a nice spread between the two, increasing profit margins. Our Mortgage Rate Outlook Panel of experts thought we would see this mortgage rate trend for lower rate fixed products this month and they proved to be correct.

---------------------------------------------------------------------------------------
Here are details for the BMO Low-Rate Mortgage:

5 year fixed term

Only 10/10 pre-payment privileges (vs 20/20 on other BMO products)

Maximum amortization period: 25 years

You can’t refinance or switch to another mortgage lender before the 5 year period is over

Not available on non-owner-occupied rental property

-----------------------------------------------------------------------------------------
You can see all BMO Bank of Montreal Mortgage Rates here.


This is a low rate product that could work for those that are certain on what the next 5 years will bring, but as most Canadians typically transact on their mortgage every 3 years or so, this may not make sense for most home owners. If you’re looking for more flexibility, you may want to compare this against the best mortgage rates in your province to see what other offers are available that may be better suited to your own situation.

[Kayotic]

not to mention that with the BMO 2.99% 5 Year you are stuck with them for 5 Years and can only refinance with them and not another lender. No one can predict where they will be in the future so having restrictions like this can really cost you a lot. Also I'm sure if you do need to refinance during the term your rate will be significantly higher because they have you by the tail! Many other lenders don't have the refinancing clause and offer great rates and flexibility.

[tjthemanto]

If you haven't already heard, BMO was the first to offer a 2.99 percent 5 yr. fixed mortgage and while this "sounds" fantastic, I urge people to carefully look at all the details (especially if you're re-financing)

The POSITIVE side is: if it's your first mortgage and you will be choosing the 25 yr. amortization AND you will be staying in that home with no need to break the mortgage, it's a great product.

BUT as Cnd's drift further and further into debt (even MORE then Americans!!) it would be wise to consider an interest rate just a few decimal points higher in order to have the option of a lower amortization and other benefits, not offered with the 2.99 mortgage.

To explain: Take a $300k mortgage
With a 2.99 percent/25 yr amortization "special". . .at the end of 5 years you'll have paid:
$41466 in interest, $43625 in Principal, and end with balance of $256,374

With just a slightly higher rate of 3.29 & a 20 yr. amortization you've paid:
$44,504 interest, $57,752 in principal, and have a balance of $242,247. You just paid $14,127 more on your principal in just 5 years by only paying ".3 percent" more and shortening your amortization by 5 years.

Moral of the story? Instead of trying to make our "payments" as cheap as possible, take advantage of these historical low rates to BUILD FOR YOUR FUTURE. We don't know what's going to happen in the future with these VERY unsteady economic times. Think Smart. Pay down!

In the above scenario aren't your monthly payments per month with BMO also much lower than the other mortgage because the interest rate is lower and the amortization period is higher..lot of people go for a 25 yr amortization as opposed to a 20 year amortization since they just can't afford higher monthly payments due to other bills like car insurance, groceries, utilities, propert tax, kids etc.

Of course the ideal situation is to have as low an amortization period as possible so as to pay off your house faster and pay less interest in the long run, but it's hard for most people...hence most people generally seem to go for a 5 year term and 25 year amortization.

But I think TD's 4 year term at 2.99 % is a much better option due to less restrictions and more flexibility than BMO.