Posted by: Vince Gaetano
Everything old is new again.
BMO has lowered their 5-Year Fixed Rate Mortgage to 2.99%; and once again, news outlets and national papers have picked up on this and released it to Home-Owners across Canada.
But what if we told you that better products have been available to Canadians for quite sometime already?
While the low-rate certainly is eye-catching, there are a number of caveats that come with BMO’s low-rate mortgage offer:
- In order to get out of this 5 year mortgage, you must either sell your home or refinance your mortgage only with BMO and no other lending institution. If you do decide to refinance with BMO, you will not be offered their best rates, and will lose any negotiation privilege.
This is a heavy restriction – be forced to take any rate given to you upon refinancing or sell your home – not a particularly endearing scenario.
- Lower pre-payment privileges; you will only be able to pre-pay your mortgage up to 10% in any given year.
Proper mortgages in the Canadian market allow home-owners to pre-pay up to 20% of their mortgage annually.
- Lower optional payment increase privileges; similar to pre-payments, you can only increase your monthly payments once a year up to 10%.
This hampers your ability to pay off your mortgage quickly – and thereby incurring more interest. Canadians typically have access to increase their payments up to 20% a year – this is an extremely useful tool to pay off your mortgage as quickly as possible.
- 25 Year Amortization Max; regardless of how large your down-payment is, you cannot select an amortization greater than 25 years.
Many mortgage lenders in today’s market place allow for amortizations greater than 25 years for home-owners who have down-payments equal or greater to 20% of the value of their home.
As of this writing, there are a handful of 5 Year Fixed Rate Mortgage products available to MonsterMortgage.ca that come in at interest rates lower than 2.99%; however, these mortgage products aren’t better because the rates are lower — these products are better because the restrictions in the fine print aren’t there.
And that’s something you can take to the bank.
EDIT: A Globe and Mail article has been released on April 1st,2014 detailing the pitfalls of the BMO Fixed Rate Mortgage Product. You can read this article here.