BMO is making waves this morning by announcing a 2 week special on their 5/yr Fixed low rate mortgage offering. While upfront the offering of 2.99% 5/yr for No-Frills Low-Rate might look attractive, it is important to also look at the terms and conditions of this mortgage and consider more than rate.
BMO’s Low Rate Mortgage has the following restrictions:
- Maximum Amortization: 25 years
- Rate Hold: Up to 90 days (up to 120-180 days are available at some lenders)
- Lump-sum Pre-payments: 10% maximum per year (1/2 of the 20% that BMO normally allows and substantially less than what other lenders offer)
- Limited Payment increase: 10% maximum per year (1/2 of the 20% that BMO normally allows and far below the option to increase up to 100% offered by other lenders)
- Term: Fully closed unless you sell the property to an unrelated purchaser at fair market value, refinance (with BMO only), or early renew into another BMO mortgage. Pre-Payment penalties will still apply. That means the potential of an IRD.
- BMO Mortgage Cash Account, Skip-a-Payment, ReadiLine (Homeowners Line of Credit) are not available with the BMO Low-Rate Mortgage. This product is also not available to non-owner occupied rental properties.
With a product like this it’s most important to sit down with a mortgage professional to discuss whether a no-frills product is right for you. While the small interest savings up front might look attractive, in the future the penalties to get out of a mortgage of this type can come back to bite.
It should also be noted that in the past there have been lenders that have broken the 3% barrier on their 5/yr fixed rate mortgages for limited time (and without limited features) in the past. I suspect we’ll see a few other lenders match what BMO is offering quite soon.
Update Jan. 13th, 2012: Lenders are now coming forward with their offerings to compete against BMO’s offering. TD Canada Trust is offering a full featured 4/yr fixed rate at 2.99% and ING has come forward with a historical low rate of 3.89% for their 10/yr Fixed rate.
Update March 27th, 2014: BMO has just lowered the Low Rate Basic Mortgage to 2.99%, however, lower 5 year fixed term rates are available. See our current rates here.
For more information on either of these offerings don’t hesitate to contact me anytime.