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.

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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.”