Major banks have long been advertising mortgages at rates significantly above their typical best rates. This “discretionary pricing” model has served them well for years.
The problem is, discretionary pricing makes mortgage research and comparisons more difficult. That leads to many consumers (even those with similar qualifications) paying significantly different rates at the same institution. Critics argue it also cheapens the mortgage experience by forcing people to haggle for a fair rate.
BMO’s Low-Rate Mortgage is challenging that paradigm, and in doing so it has benefited Canadians as a whole.
In 2011, the average Canadian’s discount on a 5-year fixed term was 1.46 percentage points below the posted rate, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). BMO’s Low-Rate Mortgage is frequently priced well below that level.
More importantly, unlike other major banks that prefer opacity, BMO posts this aggressive rate publicly for all to see.
That, in turn, has encouraged competitors to set their own pricing more aggressively. It has also provided a key reference rate for consumers to use in negotiations. Those outcomes have directly and indirectly led to meaningful interest savings for thousands of Canadians.
While BMO’s Low-Rate product has tradeoffs—including restrictions on switching lenders before maturity, a 25-year maximum amortization, and modest 10% prepayment privileges—it has nonetheless taken bank-rate transparency to an important new level.
In addition, despite 30+ year amortizations being suitable for some, the Low-Rate Mortgage’s promotion of shorter amortizations has made consumers think twice before sacrificing interest savings for payment savings.
Objectively speaking the Low-Rate mortgage is not the best product in the market, but it has made the greatest difference to consumers, whether they know it or not. For that reason, Canadian Mortgage Trends is awarding it The 2011 Mortgage of the Year.
About CMT’s Mortgage of the Year:
Canadian Mortgage Trends grants its Mortgage of the Year each January to the mortgage product that has offered the greatest innovation, flexibility, and/or cost savings to homeowners in the prior year. This is the fifth year that the award has been presented.