BMO’s Drops The Gauntlet With Its 5-Year “Low Rate” Mortgage

BMO It’s rare to see a big bank undercut its mortgage competitors so publicly.

Most of the time they do it stealthily with “discretionary rates” that are only offered to the bank’s best customers.

Not this time.  BMO has declared war with a new 3.75% five-year fixed rate.

The other big banks are advertising 4.09% for their “special offer” rates. BMO’s promo, however, is 0.34 percentage points lower, and a juicy 1.64% off posted rates! 

The move is a clear play for market share and it will, no doubt, shake other banks in their boots.  If other lenders match, it will leave them with just a 121 basis point spread above 5-year bond yields. That’s uncomfortably below the 135 bps minimum they usually like to see.

The main terms of BMO’s special are as follows:

  • Maximum Amortization:  25 years
  • Rate Hold:  Up to 90 days
  • Pre-Approvals:  Allowed
  • Lump-sum Pre-payments:  10% maximum per year (1/2 of the 20% that BMO normally allows)
  • Optional Payment increase:  10% maximum per year (again, 1/2 of the 20% that BMO normally allows)
  • Term:  Fully closed unless you sell the property, refinance (with BMO only), or early renew into another BMO mortgage.
  • BMO Mortgage Cash Account:  Not available with the Low-Rate
  • BMO Skip-a-Payment:  Not available with the Low-Rate
  • BMO ReadiLine:  Not available with the Low-Rate
  • Rentals Allowed? Yes
  • 2nd Homes Allowed? Yes

Some will view BMO’s 25-year amortization limit as a PR play to show that BMO encourages responsible borrowing. However you want to spin it, it never hurts to encourage less leverage among consumers.

It’s also interesting that BMO has cut its pre-payment privileges in half with this promotion.  This promo is the closest a Big 5 lender has come to a “no-frills” mortgage in quite a while.

BMO’s move is not only an attack on other lenders, but it’s a direct assault on brokers.  Most brokers generally offer 3.79% for a 5-year fixed with a 90-day rate hold. That said, certain high volume brokers with lender status are quoting rates under 3.75% for 90-day closes, and below 3.70% for 30-day closes.


Sidebar:  In its press release, BMO said it recently polled Canadians and found:

  • “Nearly 70 per cent of current home owners are looking to pay down their mortgage sooner.”
  • “74 per cent of Canadians looking to purchase their first home are considering an amortization of 25 years or less.”
  1. Wow! Thanks for the big news … if I’m not mistaken, this is the lowest five-year advertised rate ever from any of the big six banks, correct?
    Please advise if you notice any of the other banks matching.

  2. and the mortgage rates continue to drop, contrary to popular belief among the economists and other experts :)

  3. I’d counter Al’s comment- the mortgage rates are not continuing to drop, rather this is one lender dropping its five-year discounted rate with some serious asterisks attached (max amortization, no skip-a-payment option). Furthermore BMO does not pay mortgage brokers as they exited the field, so that is one way they can offer this rate. It is not spectacular, it’s a decent start and let’s hope the broker-channel lenders will follow suit.
    sit back and enjoy the ride folks!

  4. Well, kind of Deja-vu.
    I recall BMO’s posted rates were 0.34% lower than the other Big Banks in 2005 summer.
    Oh, isn’t it funny BMO says in the release that “Customers have told us that they want to become mortgage-free faster, pay less in total interest” and then turns around and trim the prepayment to 10/10 from 20/20 ?-Hmm, so this isn’t about letting Canadians pay it faster, this is about getting them to pay BMO more !

  5. Al what’s your point?
    Are you saying you’re a better predictor of interest rates than the experts you’re taking jabs at?

  6. “Are you saying you’re a better predictor of interest rates than the experts you’re taking jabs at?”
    I think he is making a much more serious accusation: That he is exactly as good as they are.
    Which isn’t very good…

  7. John, come on man, you can’t complain that they are allowing 10/10 prepayment, that is basically standard in the industry anyway, 20/20 was better than most.
    And besides, when you’re at a 3.75% five-year mortgage, why on earth would you want to pre-pay? It’s when you have a HIGH interest rate that prepayment privileges take on significance …

  8. Dan, I disagree with you about prepayment when rates are low. This is exactly the time to be paying down your mortgage. If you prepay when rates are low, then when rates are higher, interest is being calculated on a lower balance and the savings will be greater over the longer term.

  9. I think its a pretty good offer from a BANK. Most people I know would love to take advantage of additional payments etc, but are finding it harder to do so these days for many reasons…jobs/new families, etc.

  10. But Gritty, that makes no sense …
    When you have a high mortgage rate, in a low interest rate environment, that’s when you’d want to pay off your mortgage faster from cheaper sources of funds (like a line of credit or loan with lower interest rate) or you may want to re-finance your mortgage.
    However, if you have a low mortgage rate, you never find yourself in that situation where there are cheaper sources of funds around you, so you have no incentive to pre-pay.

  11. Out of curosity, what is the best variable that people are seeing? I have been told prime minus .4 and that prime minus .5 is coming soon.

  12. Dan,
    if one has to borrow to make a payment then it is different.
    But, when the issue what to do with the money at hand (pay off the mortgage or invest ?). In this climate, I would want to pay off the mortgage.
    Does ING allow 25/25 prepayment ? I don’t think of the Big 5, if I want a “no frills mortgage”. BMO is reducing to that IMHO.

  13. I read about it in today’s Globe & Mail, so it must be legit … part of their strategy to boost mortgage market share, which is currently at 9.2% (down from 9.3% previous quarter and 9.9% a year ago).

  14. I talked to my bank yesterday about this, they are calling me a BS’er because if BMO was publically offering this it would be on their website.

  15. it is on the website under special mortgage rates. Believe me, as I am a BMO mortgage Specialist…lol

  16. I was just offered a VRM mortgage at P-.3 from Scotia here in BC (we don’t seem to have the same choices?) but I’m struggling with the attached HELOC rate. There was a mass movement when the economy slipped and all LOC seemed to go P+1 but I know of people at Prime. I tried to get a match from Scotia but no go. Anyone have any insights on the going rates for LOC? I own more than one property so am trying to maximize my equity usage. Mortgage brokers I’ve tried to deal with(so far) offer no insight or suggestions. And I have stellar credit / real estate experience so that’s not the sticking point. Great posts BTW. Love hearing all the intelligence, experience and perspective.

  17. Hi Joanne,
    Here are a few names. Call or email a good mortgage planner if you need advice on their rates, features, and restrictions.
    * Laurentian Bank
    * BMO
    * National Bank
    * RBC
    * DUCA (if you’re in Toronto)
    Feel free to get in touch any time if you need additional help.

  18. Joanne, to answer the actual meat of your question, the going rates for LOC, if secured, should still be prime to prime+0.5.
    I got my prime LOC back in 2007 with RBC and it has not budged. I think it’s only fair for new people getting LOC’s to be entitled to the same rate as others who already have … so push hard and maybe you will get a match.
    Also, I just heard of someone who got a 1.60% variable mortgage … let’s hope it’s a sign of things to come.

  19. Sniff, sniff….
    I knew I smelled something.
    The “going rate” for a secured line of credit is prime to prime + .50%????
    In what country? Which bank do you work for?
    You do realize that “going rate” implies that the masses have access to that rate, right?
    On the planet I live on here are the facts:
    The typical HELOC rate is prime + 1%.
    The average rate is probably prime + 0.75%.
    The best publicly quoted rate from a reputable lender is prime + 0.50%.
    Where on earth are you coming up with a “going rate” that starts at prime???

  20. Sorry BS but it was my choice of words in “going rates” and perhaps I should have used “preferred” or something else but I know there is better deals to be had. Dan is right that prime and P+.5 can be had. I was asking in order around to better inform, leverage and if so, move my business to someone that want my mortgages. Thanks all for the advice!!

  21. OK Bob, so I just confirmed a 5 year fixed for 3.89 just a couple of days ago..can I call and get this 3.75 rate?

  22. That’s a good deal?! Firm sale required to break to the mortgage, limited prepayments, amortization is limited (although I will admit I haven’t done 30+ years amortizations in a while, maybe that’s good news), maybe for a bank it’s a good deal.
    I’m just wrapping a deal with ING at that rate with no strings attached at all and a full prepayment facility.
    Rob, I’ve actually seen 5 bps lower than that from another bank about two weeks ago. However, that deal too was limited exactly like the BMO deal with firm sale required to break and 10% prepay.
    I think we’re seeing some of these banks becoming another IA with trying to lure people with top broker rates but with restrictive mortgages. I truly hope people would do their due diligence and not just fall for the rate.

  23. Joanne: you won’t get prime + .5%. RBC had that deal going but now they’re back with all the rest at prime +1%. The best you could get with no hassles is prime +.85% with NBC. FL had a promo, if you were a top broker with them, for prime +.60% a while ago for a matrix. As of now most lenders would be prime +1%.
    A few weeks ago someone called me inquiring about moving their HELOC from TD. Even with a fully paid 700,000 house and 25 years as a TD client, they received a letter that their HELOC rate would be going up to prime +1%.
    As far as HELOCs go, it is what it is. The banks won’t compromise on their margins no matter how much business you have with them.

  24. Len – I have printed proof from a co-worker that holds a LOC at Prime with RBC. I do have an unsecured LOC at TD (I know it is against all odds) that sits at prime as well but it’s not enough to suit my investment purposes. I was offered P+.5 from my primary bank. Based on the discussions, some variation in perceptions.?!

  25. To turn this thread back to the original heading and for good reason, has anyone noticed what has been going on in the bond market these last few days? Anyone looking at obtaining a 5 year fixed had better get into their bank or call their broker today and get today’s rate locked in. That’s TODAY because The 5yr GOC bond rate has shot up in the last few days (17 basis points so far today) and all immediate indications are that 5yr Fixed mortgages are on their way back up. As it stands right now if things hold, we are looking at a 30 basis point increase to 5 year fixed mortgages by this time next week. Thoughts anyone?

  26. Banks are no Friend.
    One reason the Banks have got so aggressive is the CMHC (Crown Corporation) backs them 100% on defaults. Mortgage default insurance is required by most lenders whenever a homeowner puts down less than 20%. The biggest mortgage insurers in Canada are CMHC, Genworth, and AIG–in that order. The country’s top commercial bankers, who between them control more than three-quarters of the country’s $940-billion mortgage market.
    Consumers cover the premiums and, because most mortgage insurance is underwritten by CMHC, the federal government (tax payer) ultimately takes the risk.

  27. If the bonds are on a tear that means yields are going down! If that’s the case, why would fixed rates be going up?
    You must mean the bonds are getting smoked, which they are … boy won’t BMO look silly if they have to pull this offer next week, after only a few days of availability.

  28. Just 3 days ago, Rob(CMT) said above:
    If other lenders match, it will leave them with just a 121 basis point spread above 5-year bond yields. That’s uncomfortably below the 135 bps minimum they usually like to see.
    3.75% (BMO special rate)- 2.78% (GOC5yr)= 97 BP spread (at this moment).
    Rob is right, bankers don’t like that spread and especially when we are contending with higher arrears today. Grade 2 math.
    Long term fixed rate mortgages are going up Monday!

  29. with regards to HELOC, its better if the clients get the BMO ReadiLine
    the LOC portion of it is at BMO Prime (2.15%) + .50.
    And if its an existing BMO customer tehy will get (2.15%) +.40%.
    Its the best out there by miles.

  30. BMO 5 yr special now at 4.09% – just checked their website…well that party ended quickly!
    Also, if anyone is in B.C. and wants a HELOC go to Coast Capital Savings – their HELOC is at prime + 0.5% = best out there

  31. National Banks All in One mortgage is way better because the rate is similar and you save interest by merging your debt and savings (Like Manulife). Everything is automatic with National so you dont have to call and ask them to readvance credit when you make a mortgage payment. I think with Coast Capital you have to do that.

  32. The BMO 3.75% is real, and what isn’t mentioned in the Globe and Mail article is that 3.75% is the STARTING rate. That is, if you have a BMO bank account, BMO Mastercard etc, you can get a discount off the 3.75% rate (depending how many products you have and how much the mortgage is). There is a lack of info about the 3.75% rate on BMO’s website because the official start date for this promotion is March 8th.
    Also, I wouldn’t get a Manulife one mortgage, Home Line of Credit, or any other variable rate mortgage at the moment. The Bank of Canada clearly states on their website that they intend to raise interest rates, slowly and constantly, for the next 4 years straight.

  33. “The Bank of Canada clearly states on their website that they intend to raise interest rates, slowly and constantly, for the next 4 years straight.”
    Can you provide a link to this statement?

  34. Hi Lior,
    Appreciate the note. I couldn’t agree more with the spirit of your message (i.e., heed the fine print).
    Objectively speaking, this BMO deal is good for consumers in the sense that big banks are now competing more openly and aggressively on rate.
    Whether it’s a “good deal” depends on your needs as a borrower. I totally agree that better options exist for most people if you know where to look (i.e. lower rates with less strings).
    I’d nonetheless applaud BMO for adding competitiveness to the marketplace. This promo has definitely turned up the flame on competitors. A few days day after, CIBC came out with their own special offer for switches.
    This move is probably the first of many similar offers to come. We’ve always known that lenders would eventually use no-frills mortgages (like IA’s) to attract rate-obsessed customers. But we didn’t think it would happen so soon in a Big 5 bank’s retail channel.

  35. so I have a readiline at BMO and I’m wondering if I should take most of it and put it in a 5 year 3.75 fixed. any thoughts??

  36. Thank you for the info. I’ve been learning to research a bit and am wondering if I should take my current $175,000 from Readiline and switch to fixed then based on the fact that prime will go up? Do you just flat out ask them how much they’ll lower the 3.75 based on what you have with them (BMO)? Just curious.

  37. There’s no way he can provide a link to that statement, because it’s purely false. The Bank of Canada makes their decisions at their meetings every six weeks, based on current economic decisions. They don’t even know what they’ll be doing in four months from now, let alone four years!

  38. Hi Rob,
    Indeed, ultimately it’s all about the needs and goals of the applicant and their unique circumstances. And to be fair to BMO, they were also the first “big” bank to drop their rate to prime when the rest of the banks held out longer. And now apparently they have a lead with fixed rates.
    I saw BMO’s ad in the paper today and it did not mention any of the limits discussed here in the fine print.

  39. Hi Marc,
    That’s fine. It remains to be seen how long RBC would hold these rates.
    I didn’t know NBC were offering prime +.60%. That’s quite a good rate compared to what’s out there. We must not be sending them enough business.

  40. Don’t think it will be tonight but if the yield stays in the same neighbourhood I’d reckon this week we should see increases across the board.

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