BMO Cuts Prime 1/4%

BMO just announced it is dropping its prime rate 1/4%, in line with the Bank of Canada.

BMO was the first big bank to move today.  Their statement was issued at 9:01am ET, just one minute after the Bank of Canada’s announcement.

The rest of the five major banks are expected to follow.

BMO said that its closed variable-rate mortgage will now be priced at 3.05% (prime + 0.80%).

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Update (12:00pm ET):

All the big banks have followed BMO’s lead. The benchmark for prime rate is now 2.25%, effective tomorrow.

  1. Great News, what are you thoughts, on someone going with a variable rate right now, at prime +, until mid-2010, then switching to a fixed at that time, or do you see fixed rates taking a climb by then.

  2. Hi Mustapha,
    Thanks for the note. A lot of people are asking this question given our current environment.
    The Bank of Canada told the market today that it will keep rates low until June 2010. If they hold true to this (and inflation doesn’t exceed 2% or so), variable rates could stay low for the next 12 months.
    Fixed rates are a different story. If the economy recovers (or inflation re-appears) sooner than expected, 5-year bond yields could jump and fixed rates may follow. Keep an eye on the 2.00 to 2.15% range. If yields back up through that region, fixed rates may start upticking. It’s far from foolproof but some guide is better than none. Cheers, – rob

  3. Wow. My mortgage will be going down to 1.5% next month! Glad I went variable. Almost makes up for the fact my house is probably down 20% in value since last year!

  4. – overpaid: –
    If it’s the house you live in, then it more than makes up for whatever a decrease in the value of your home. Think of comparing the cost of carrying the house mortgage (+ taxes + maintenance) as compared to rent for a similar property … At least that’s my personal justification.
    That, and the fact that it’s easier to build equity by paying down in lump sums or increasing payments (if you’re not on a fixed payment plan already.) That should help with the renewal when that comes up.

  5. Chris,
    Actually, it doesn’t come close to making up for a 20% depreciation.
    In the short term, yes the monthly cost is lower. But in the long term the rates will go back up.
    Further, the resale price of real estate varies inversely with rates. When the rates go up, affordability goes down and the price people will pay goes down.

  6. Ok, come on down TD bank, you’re the next contestant on, the price is right! lol sorry, so nice to see fixed rates drop like this.

  7. so is this a good set up? i have not lowered my payments when the interest rates went down im still paying the same amount as i was when i got the mortgage almost 1 year ago. PS should i remove that home protector and get something else?
    Current Details
    Original Balance: $325,000.00
    Outstanding Principal: $313,954.43
    Original Amortization: 300
    Actual Months Remaining: 189
    Interest Details
    Interest Rate: 1.65%
    Accrued Interest: $98.06
    Maturity Date: 16 May 2013
    Mortgage Term: 60 months
    Mortgage Type: Variable
    Payment Details
    Payment Frequency: Bi-weekly-24
    Payment Due Date: 30 Apr 2009
    Regular Payment: $871.26
    (includes principal & interest)
    HomeProtector® Insurance
    Premium: $ 27.00
    ____________
    Total Regular Payment: $ 898.26

  8. amigood….
    so does that mean that you will have you house paid off in 15 years instead of 25? what happens May 16 2013? will the amortization be less?

  9. Cancel the damn homeprotector ASAP. Creditor declining balance insurance is awful. Get some regular term insurance. Every month you are paying the same premium for less coverage. This only ever makes sense if you would be unable to get normal insurance elsewhere – as a result there is massive antiselection and high premiums.

  10. Hi, I need some help with my current mortgage. In July 2008 I decided to lock in (%5.20) my Homeline Mortgage with RBC, which I only took out in May 2008 as a variable mortgage at prime minus .5o%.( I believe prime was %4.25 then) I believed I would forstall some interest rate rises which were “going to happen, come fall 2008”. I am sure I was not the only one doing this!(Weep!) The principal balance is for roughly $685,000, amortized over 40 years, with a rate since July 2008 at %5.20. My monthly payments are $3397.03 with exactly 48 months remaining on my 5 year fixed term. Upon enquiring at RBC I was told that my penalty to get out of this mortgage now and refinancing at a lower rate would not be worth it, and the penalty would be around $27,000. I’m sure it comes down to just simple math, is it worthwhile to pay the penalty now, and go for a variable again, or even lock in again for 5 years at a lower rate? RBC isn’t going into very much detail on this, I have the feeling everybody I talk to there doesn’t really know how to figure it out either. Any help is appreciated.

  11. Buzz – contact a mortgage planner – they can work you through the penalties involved ( ie 3 months interest, interest rate differentials, etc)
    Some lenders (including your current bank) are willing to compromise on some of the penalties to help keep you/bring you in the door – and perhaps let you roll the penalties into the new mortgage.
    As there is a number of factors involved, its best to contact a professional!

  12. Buzz – Actually, it’s not that difficult.
    Based on your numbers I’ve done some calculations for you. If you refinance and add the $27k to your mortgage (or use available credit from your Homeline), your mortgage balance will be about $1,160 lower in 48 months.
    Yes, you’ll be $1,160 closer to paying off your mortgage but I would encourage you to just relax. You’ve still got a decent rate. You’ve got lots of time left on your amortizaton. Who knows – rates might be better in 2013 (current renewal date) than 2014 (if you refinance now). Mortgage rates are like investments, YOU CAN’T TIME THE MARKET.
    With a mortgage that size you should request to be assigned to a Financial Planner at RBC. They can help you verify my calculations. I am VERY happy with mine. Financial Planners will help you reach all your goals. Mortgage Planners can’t do that.

  13. You’re better to speak with an independent mortgage advisor. RBC reps are completely slanted to their own offerings.

  14. Hi Peter,
    Thanks for the question. Mortgage planners have access to numerous readvanceable mortgages, including some of the best in the industry.
    There are a minority of lenders (like RBC and BMO for example) that do not have a broker channel, however. In these cases, mortgage planners do not handle applications for these products directly.
    In some cases, non-broker lenders will in fact have a product that is the best fit for a client at that time. In these cases, some brokers will recommend these lenders and some won’t (generally because they don’t specialize in non-broker products).
    Speaking just for ourselves, we like to follow all lenders because it helps clients compare every available option. That’s an individual decision however.
    Hope this clarifies…Cheers,
    -rob

  15. Just before the decrease, BMO calculated our penalty for refinancing at around 1500$. The day after the decrease, they said the penalty is now 2500$. Anyone knows if this is logical?

  16. That interest rate drop is JUST what I needed! In fact I went with a broker and a found a much lower rate with another lender.
    Closing took longer than I wanted it to. I called BMO on March 9th – penalty was going to be $3500. if cashed out that day. Called them again on April 16. They gave me almost the exact penalty amount with an EXACT SPECIFIC QUOTE for closing April 30.
    Close today – penalty amount has gone UP to almost $6000. since my call of 13 days ago. I’m trying to fight with the bank. Do I stand a chance? I’m so angry. So – what they tell me on the phone means NOTHING? The calls were recorded for MY protection and I’ve asked them to go back and listen to those calls. Any advice or suggestions OR do I just have to be another victim in a huge corporation’s little game – against the ‘little guy’?

  17. This doesn’t help you now but for future reference it’s best to get IRD penalties in writing.
    Try filing a complaint with BMOs ombudsman.

  18. I’m paying an IRD penalty as well in the next week. Isn’t the nature of the calculation that they change based on the variables (posted rate variable for example). I would guess that they can tell you whatever the cacluation is on the date you call but when the mortgage is actually discharged it’s the IRD calculation for that day. Is this not true? If they quote you a figure do they have to hold that for a period of time even though the variables change?

  19. Hi Patrick,
    You’re right that IRD can change as rates change. In general, IRD gets bigger as rates fall.
    In some cases it’s possible to lock in one’s IRD penalty with your lender (before you pay out your mortgage). In many cases it’s not.
    Each lender is different so contact your lender’s customer service number to inquire.
    Cheers,
    -rob

  20. Need help figuring out what to do with my mortgage.
    Original Balance: $137,700.00
    Outstanding Balance: $130,076.84
    Original Amortization: 260
    Actual Months Remaining: 200
    Interest Rate: 6.11%
    Accrued Interest: $85.92
    Maturity Date: 05/May/2010
    Mortgage Term: 31 months
    Mortgage Type: Fixed
    Payment Frequency: Weekly – 48
    Regular Payment: $237.72
    Insurance: $14.46
    Total Payment: $252.18
    With my mortgage coming due soon I need to know what to do as I have never renewed my mortgage as of yet. I am with RBC and I also want to consolidate some outstanding debt a.s.a.p. So what is my best option?

  21. There is something that doesn’t sound right with your numbers.
    Annual interest on a 137k mortgage would be about $8200, and at $250 per week, you should have paid off over $20k in five years.
    How come you have only paid off only $7700 in 60 months ?

  22. Hi Jmay,
    Thanks very much for posting.
    In general, CMT avoids making borrower-specific recommendations in the forums. There are too many details that need be discussed before suitable recommendations can be provided.
    For any questions specific to your personal situation (like should I refinance?, should I go fixed or variable?, etc.) you may be best served by calling or emailing a mortgage planner you trust. You can often get the answers you require with just a brief phone call.
    For more general questions we’re always happy to oblige.
    Cheers,
    Rob

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