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Mar 17 Beware the Big Bank Bearing ‘Special’ Gifts

Posted by: Kristian Harris

A big bank looks to make fresh news on a stale mortgage product.

BMO has lowered their 5-Year Fixed Rate Mortgage to 2.79% in hopes of capturing the attention of Canadians looking to purchase or refinance their homes; however, if this is anything like their previous special offers, the eye-catching rate disguises some unappealing fine print.

It’s certainly worth mentioning that 2.79% on a 5-Year Fixed Rate Mortgage has been available from a variety of lenders for quite some time now. But as many home-owners have come to know, a mortgage agreement is far more than just a low rate.

As of today, there are a number of 5 Year Fixed Rate Mortgage products available to MonsterMortgage.ca clients available at a lower interest rate of 2.74%; however, Canadians won’t be subject to the restrictive fine print that comes with such a ‘special offer’ from the big bank.

While the 2.79% rate will stir some business and grab media headlines, there are a number of caveats that come with BMO’s low-rate mortgage offer:

- One of the most restrictive caveats being the clause that you may not break the 5 year mortgage unless you decide to sell your home or refinance only with BMO. Of course, if one does decide to refinance with BMO, they should certainly not expect to receive any special ‘low-rate’ offers. Take a look at the Bank of Montreal’s ‘regular’ mortgage rates. Today, a 5 year fixed rate mortgage is posted at 4.74% – a rate that is far and away from being competitive in today’s marketplace.

In a scenario where home-owners want to consolidate debt or access their equity, BMO will provide to them two different options: sell your home or refinance your mortgage at an inflated & non-competitive interest rate.

- The BMO mortgage offers minimal pre-payment privileges to home-owners serious about paying off their mortgage. Offering a 10% annual lump-sum payment and 10% increase in monthly mortgage payments pale in comparison to what flexible mortgage lenders offer. BMO’s ‘special offer’ lags behind other lenders offering the same interest rate with pre-payment privileges of 20% or higher.

The 10%/10% pre-payment options put a limit on just how much more home owners can put towards their mortgage and ultimately, how much interest they can avoid paying. Canadians with access to pre-payment privileges up to 20% or higher are able to attack their mortgage debt much more aggressively and become mortgage free much sooner.

- The BMO ‘special offer’ has a maximum amortization of 25 Years. Even if you provide a down-payment of 20% or higher, you cannot select an amortization schedule more than 25 years.

Many mortgage products 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. A longer amortization schedule means your monthly or bi-weekly mortgage payments become lower – increasing your month-to-month cash flow and allowing home-owners greater power in decision making when it comes to their money.

As of this today, there are a number of 5 Year Fixed Rate Mortgage products available to MonsterMortgage.ca clients available at an interest rate of 2.79%; however, Canadians won’t be subject to the restrictive fine print that comes with such a ‘special offer’ from the big bank.

Unfortunately, fine print doesn’t make headlines – but it can be the difference between putting more money in your pocket, and not your bank’s.

Note: A Globe and Mail article was previously released on April 1st,2014 detailing the pitfalls of the ‘special offer’ BMO Fixed Rate Mortgage Product. You can read this article by clicking on this link.

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