A closer look at the BMO low rate mortgage

[themortgageguy]

The spring market is finally here and predictably BMO is offering up their “Low Rate Mortgage” special to drive spring buyers into their local branch.

It’s not very often that a client looks at the details behind these offers because they are usually driven purely by the rate being offered. The 2.99% rate for a 5 year fixed mortgage is good but rate isn’t everything.

Here’s a quick summary of some other important factors you need to take into account when considering the BMO low rate special:

• Only a 10% pre-payment option
• The mortgage cannot be broken unless the property is sold or unless it is refinanced with BMO: During the term of the 5 year low-rate mortgage, full repayment before maturity can only occur if the property is sold to an unrelated purchaser at fair market value or if the mortgage is refinanced into another BMO mortgage product.
• Should the mortgage be broken, the discount you received from the then posted rate will be added back to calculate the breakage penalty. BMO current posted rate is 4.99% for a 5 year fixed mortgage.

So although the rate being offered is good, the mortgage is no frills and quite restrictive. You need to consider these other factors and decide whether or not the product is right for you given what is available from other lenders and what your future plans are. Take the time and educate yourself and you will usually end up in a better mortgage.

Here’s a quick snapshot of what other less well publicized mortgage lenders are offering currently:

1. Five year fixed mortgages as low as 2.89% with 20% prepayment privileges and no breakage sale clauses.*
2. Five year variable mortgages as low as 2.35% with 20% prepayment privileges and no breakage sales clauses.*
3. 3 year fixed mortgages as low as 2.49% with 20% prepayment privileges and no breakage sale clauses.*

* Terms and conditions apply. OAC and rates subject to change

Note that the above products are not available for purchase pre-approvals. However you can take advantage of them once you have identified a property and have a purchase and sale agreement in hand or are looking to renew or refinance your current mortgage.

120 day pre-approvals are currently available for 3.09% for a 5 year fixed mortgage. Note that the BMO offer has a pre-approval period of 90 days and the promotion ends on April 17, 2014.

[Brooke_]

My boyfriend and I both have mortgages with BMO and wouldn't trade them for anything. BMO has the best customer service, and even tho a rate somewhere else might be better, dealing with competent, friendly people when we need to makes it worth every cent.

[MortgageQueen]

It's not often I hear such a glowing report about BMO Brooke. I'm glad you've had a good experience. I find often the service is a reflection of the manager in specific branches.

Unfortunately BMO's 2.99 offer is one of the worst mortgages out there and as themortgageguy said their are just as good or better rates with far superior options.

[Zonny]

If you go through a broker, they in theory would be knowledgeable enough to warn you about conditions like these right?

[Shwa Girl]

Here’s a quick snapshot of what other less well publicized mortgage lenders are offering currently:

1. Five year fixed mortgages as low as 2.89% with 20% prepayment privileges and no breakage sale clauses.*
2. Five year variable mortgages as low as 2.35% with 20% prepayment privileges and no breakage sales clauses.*
3. 3 year fixed mortgages as low as 2.49% with 20% prepayment privileges and no breakage sale clauses.*

* Terms and conditions apply. OAC and rates subject to change

Note that the above products are not available for purchase pre-approvals. However you can take advantage of them once you have identified a property and have a purchase and sale agreement in hand or are looking to renew or refinance your current mortgage.

120 day pre-approvals are currently available for 3.09% for a 5 year fixed mortgage. Note that the BMO offer has a pre-approval period of 90 days and the promotion ends on April 17, 2014.

So true. Need to take a close look at what banks are offering.
Thanks themortgageguy.
It's hard for people to see all the details and make the right decision.
Good thread.

[avoncallingu]

We're teetering at the brink of buying a new home, so, thanks for the "heads up!"

[tjthemanto]

My boyfriend and I both have mortgages with BMO and wouldn't trade them for anything. BMO has the best customer service, and even tho a rate somewhere else might be better, dealing with competent, friendly people when we need to makes it worth every cent.

It depends on the branch , the rep & the call centre you are dealing with.

I am also with BMO as far as my bank is concerned ( not mortgage ) ..depending who you speak to & which branch ..the CS varies greatly.

You can get great or bad service in the same bank

The worst bank I have ever dealt with has to be Scotia Bank ..this is over a period of time , dealing with different individuals

[tjthemanto]

• Should the mortgage be broken, the discount you received from the then posted rate will be added back to calculate the breakage penalty. BMO current posted rate is 4.99% for a 5 year fixed mortgage.

So is this penalty even worse than the normal IRD - Interest Rate Differential penalty , that various other lenders charge ? Am I missing something ?

I believe most banks charge a penalty of 3 months or IRD , whiever is higher ( I think )

Is the BMO penalty fo breaking the mortgage even worse than the IRD penanlty or is it the same ?

[Zonny]

As far as customer service is concerned with our mortgage, it's never been an issue - we've never required any service. My broker gets the best mortgage for us, we make the payments until it's time to renew. I've never had to contact them about anything.

It's been 11 years now, one initial mortgage that was a fixed rate, and a renewal that is a variable rate. Never had to contact our mortgage provider.

[tinambulance]

Just remember that mortgage brokers are not able to access every single bank or lending institution. They are paid by the company who gets the mortgage so brokers will be pushing certain products. Buyer beware!

[Zonny]

But the bank would certainly be pushing their own products too right? You probably won't find a completely unbiased way to get a mortgage, but a broker is probably as close as you're going to get. I think you're more likely to get a decent rate from your broker than your bank, at least in my experience. RBC, who we've done business with for a lot of years, has never offered to come close to the rate that we got from our broker.

[simranj3]

interesting post

[MortgageMaster]

This BMO no frills mortgage can only be used for a residential property. It has a maximum of 25 year amortization and only a 10% increase payment option.
A mortgage agent would not be able to get this mortgage for you as BMO does not use the mortgage channel.

[themortgageguy]

If you go through a broker, they in theory would be knowledgeable enough to warn you about conditions like these right?

That's really the point of a using a mortgage broker. Unfortunately the finance industry is one that doesn't offer up details and info unless you ask and since most people don't know what to ask important factors are often overlooked and not explained.

[themortgageguy]

• Should the mortgage be broken, the discount you received from the then posted rate will be added back to calculate the breakage penalty. BMO current posted rate is 4.99% for a 5 year fixed mortgage.

So is this penalty even worse than the normal IRD - Interest Rate Differential penalty , that various other lenders charge ? Am I missing something ?

I believe most banks charge a penalty of 3 months or IRD , whiever is higher ( I think )

Is the BMO penalty fo breaking the mortgage even worse than the IRD penanlty or is it the same ?

Every lender charges a penalty for breaking your mortgage unless the mortgage is open. For a fixed mortgage, the industry uses the greater of three months interest OR the IRD (interest rate differential). Now this is where the devil is in the details...all lenders will look at their current posted rate for a term equal to what is remaining on your current mortgage and determine the breakage rate from their. The point is this:

1) there is a very wide range of posted rates between the lenders. Typically the banks have the highest posted rates, monoline lenders the lowest. Typically the higher posted rate the higher your penalty will be assuming the the IRD is used for the penalty and not the 3 months interest. For example the typical bank posted rate right now for a 5 year fixed mortgage is 4.99% while many of the lenders that brokers deal with is 3.69%. If you do the math the difference can be significant

2) However it is only the banks (as far as I have seen to date) that will actually add back any discount they gave you from their posted rate at the time the mortgage is entered into. Continuing the example above that would mean your penalty would be calculated at the posted rate in effect when you signed the mortgage (4.99% today), not the rate that you walked out of the bank with. It can mean a much different mortgage penalty amd is an excellent client retention tool.

so to sum it up, the ird is still in effect but whats different is the add back of the discount.