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.
Here’s more from the Toronto Star
Last modified: April 29, 2014
should be interesting to see if the other 4 sheep (sorry, I mean banks) follow
Just wondering how mortgage brokers/agents feel about this, as BMO as you know pulled out of the mortgage broker market–i.e. no referral fees for brokers, i.e. no money for the broker/agent if client goes with BMO?
i like to know how is this suppose to be a helping hand for those who has prime minus mortgage. fixed rate was already at around 5.25 to 5.45 the time i got my mortgage but instead i went with variable prime minus 1% first year and thereafter at prime minus .7 so can anyone explain to me how this is suppose to be a helping hand when i clearly have better mortgage for the time being plus the way the economy is at right now, the rate wont be up anytime soon.
Hi Mike,
You’re in a great spot. Just ride it out. Some people would pay good money these days for a Prime – .70% mortgage.
———————————————————————-
Hi Johnathon,
That’s a great question. As you can imagine, most people aren’t big fans of competition unless it benefits them.
In this case, BMO has a great 5-year rate and most agents who work off the standard rate sheets will have nothing to compete with on a 5-year. I say “most” because there are some brokers that still do have access to 5-year rates that low. Moreover, some agents will still send a client to BMO anyways, despite no placement fee, if BMO has the best solution for the client.
Fortunately, there are still open variables, and 1, 2, 3, and 4-year fixed deals better than BMO’s 5-year promo. Therefore, good (some will say better) alternatives do remain. Of course, the word “better” always hinges on the client’s needs and preferences.
The key is this. 5-year terms are the old “standard” in Canada and some people don’t want to talk about any term but “5.” Lenders have recently announced great 3-year and 4-year deals but, as you can see, they don’t generate a lot of press.
Before this news came out we were planning a story about the benefits of 3-year mortgages versus 5-years. We’ll try to get it out there sooner than later…
Have a great weekend,
Rob
A bank specialist emailed us this weekend with an interesting comment. He said that “instead of lowering posted rates, banks may start increasing their discounts instead.”
It works out to essentially the same thing he says, but it won’t cost the banks as much money or require as many system changes.
RBC has lowered its Variable rates to Prime plus .60 closed and Prime plus .85 open. Again they also have pulled out of the broker market (RBC pays no fees to Brokers like BMO).
RBC was never in the broker market to begin with.
Not sure its right but Dreyer Group Mortages has 4.99% for 5 years fixed.
http://www.dreyergroup.ca/option,com_facileforms/Itemid,340.html
that might be interesting for someone who’s about to start a mortgage in April right?
That looks like an old rate because they are showing 6.85% as the posted rate. Posted rates are now 7.20%!
RBC offered me a 5years open variable at 5.20%; wondering if I should switch to this BMO offer right now.
You should not take any deals until you have at least talked to a mortgage broker.
Brokers are useless.. PS First National offer a 10 y fixed at 5.25… you’d get an extra 5 years.
for variable London Life spring sale has them at prime +.7 the lowest ive found to date.
BRod , You said: “prime +.7 the lowest ive found to date.”
Grammar aside, your statements have no credibility.
Any broker can obtain prime + 0.60 for their clients, or better.
Furthermore, if you must take a 10 yr mortgage because you didn’t get proper counsel, then any broker can obtain lower than 5.25%.
So if you like overpaying and you like leaving groundless comments on message boards, keep doing what you’re doing now.
BRod you are just plain rude.