Thanks to high short-term capital costs, lenders aren’t making much money on variable-rate mortgages these days. So BMO has come up with a plan: Get people into fixed-rate mortgages.
To execute that plan BMO is offering 5.25% on a closed 5-year fixed mortgage. BMO’s posted rate is 7.20%, so they’re “discounting” their 5-year by 1.95%. That’s just about the biggest discount off posted rates we’ve ever seen a bank publicly advertise.
Even the big discounters (ING, ICICI, Canadian Tire, etc.) are nowhere close. The best 5-year rate advertised in the Globe & Mail’s rate table is currently 5.65%.
A lot of industry watchers are now probably wondering, is this just a short-term market share grab? Or does BMO actually intend to start openly and aggressively competing long-term? Moreover, is BMO finally throwing out the bank’s age-old strategy of quoting discounts off posted rates?
One thing is for sure, there are a lot of smaller lenders who will be a tad concerned by this. BMO has deposits and other sources of capital. Most smaller lenders, however, rely on the Canada Mortgage Bond program for funding. That makes it hard for many lenders to compete with rates like this.
Despite this promotion, however, borrowers should not lose sight of the other options out there: open variables at 4.00%, 1-year to 4-year mortgages at 4.35% to 5.24%, etc. As always, the best first step is to talk to a mortgage professional and compare all the deals from all the lenders. Rates and terms change constantly.