BMO’s Back in the Rate Action

BMO-MortgageFor 31 months now, BMO’s been the only major bank to regularly advertise low 5-year fixed rates. In fact, its 2.99% 5-year offers have made headlines.

Well now it’s back, this time with 3.09%.

The product at 3.09% is BMO’s Low Rate mortgage, which leaves something to be desired in terms of flexibility (See BMO’s Low Rate Restrictions). Despite that, the offering has been a hit says BMO President/CEO Bill Downe.

Downe told analysts last week:

“…We’ve been at the forefront of a significant change in the structure of the Canadian residential mortgage market…With the success of this mortgage we have seen above average credit quality and importantly, the proportion of mortgages approved that are ultimately closed have also risen. We’ve attracted new customers and established a foundation for productive long-term relationships.”

Frank Techar, BMO’s President and CEO, Personal and Commercial Banking Canada, adds:

“We benefited because we now have customers who are going to be with us for a while and we saw a significant increase in new customers coming to BMO through the campaign as well. So, putting a fine point on it, our market share went up 21 basis points in Q3, so we did more business than some of our competitors. It’s obviously an important product to us…”

Techar says BMO is “going to compete really strongly going forward,” and the mortgage industry should believe him.

The question is, will BMO’s Big 6 competitors see its strategy as a big enough threat to launch fierce pricing of their own.

While we wait for that answer, smaller lenders and brokers will undoubtedly run specials of their own, generally with less restrictions than BMO’s offer.


Rob McLister, CMT

  1. It is really too early to to see a hike in the mortgage market, Europe is still not decided about how the crisis will be tackled, and it may spill over the global economy if it is not tackled, when no system will immuned. Rates are no way to climb from here, it is to fall a bit from here. Last month Canada lost about 30K jobs from the system, what is next!

  2. I can guarantee that other banks will compete more openly on rates as time goes on. Scotia in particular will get more aggressive once its rebrands ING.

  3. The thing I don’t understand is why other banks advertise such ridiculous rates. TD shows 3.69% for 5 years on its website but any broker will give you 3.09%. Does TD really think the public is that stupid?

  4. Your comment highlights a large mis-conseption about interest rates, and Bank Posted Rates in general (not meant to be an attack, rather than an opportunity to respond).
    Banks Posted rates serve a few important purposes the most important of these being: restricted and remote lending area’s, and non-conventional property types.
    For example if you are buying a mobile home on 10 arces in a remote part of the yukon you will soon find that your choices of lenders have dwindled all the way down to the Big Banks and potentially a couple credit unions. For which the market interest rates will be posted bank rates or close to it.
    This highlights the definition of “Market Rates” rates set by the market… with not all markets being equal… The rates are also not equal! Banks being federally regulated and with wider lending regions than mono-lines require more upward room to price rates for rural markets were realestate liquidity is low and is potentially in a different risk class.
    Credit unions due this in reverse by advertising their lowest rates and then adding premiums for higher risk loans (Rental properties, lower credit scores, non-standard properties, etc) and then have black out area’s of their lending regions.
    Ultimately each individual market has many factors which contribute to its “Market Rates” the number one being consumer education, and this is normally increased with the assistance of a mortgage planning professional!
    Posted rates may seem confusing but in the end they have alot of positives for alot of people…
    Another way to think about Posted rates are: They are “B” loans written by “A” Banks at “B” lender rates!
    Hope that helps!

  5. gee when the banks were charging us 15 per cent interest on mortgages back in the day i dont remember them ever complaining that rates were too hi and shld be reduced…

  6. Bank posted and even offer rates are like MSRP. It’s simply where negotiations start with a bank. Broker’s differ in that they usually negotiate from the bottom up, advertising their best rate but often not necessarily the best rate or product available to you and quickly switch into other offerings. Bottom line is its all smoke and mirrors. Caveat emptor.

  7. Quote: “quickly switch into other offerings”
    You mean like BMO baits people with a “Low Rate” mortgage and then switches them into a regular mortgage at a higher rate? At least brokers have more than one brand to sell and make choices known to the customer.
    By the way, negotiating with a bank is for people with too much time on their hands. Go to a reputable broker and get 2.99% for a good mortgage right off the bat. Then get advice from someone who’s a mortgage professional instead of a glorified bank teller.

  8. NO, I mean when any F.I., Bank or Broker offers a low rate/low frills mortgage, that is what you get and not to expect a loaded BMW for the same price as a base model Kia.

  9. I don’t remember any retirees ever complaining that the 13% they earned on their GIC’s was too high either!

  10. I found dealing with BMO to be extremely easy, we signed a 5 year/35 3.44 with them 1.5 years ago. They also gave us both free banking for 5 years. They were very open to extending the rate hold with us at the time also, since we had 12 month builders rate.
    Plus they swallowed 100% of the cost of the HELOC for our downpayment on the new build.

  11. I’m having a hard time buying “restricted and remote lending area’s and non-conventional property types” as justification for posted rates. Those scenarios are a fraction of residential mortgage applications.

  12. You should talk to the bank manager of a local branch in any remote town and ask him the interest rates he quotes clients coming into the branch!!
    The results will change your opinion!
    But there is also the veil of relationship pricing calculators that the big banks have spent money on developing and replacing negotiating skills of front line workers with… these calculators discount mortgages further and further from posted with longer term, dollar amount, and other products held or cross sold during the meeting to reach maximum discount…
    Which if we push lender’s to long and hard with extended low rate wars, buying down rates, and abusing volume and incentive programs, may infact replace the warm bodied mortgage proffessional with an online application and a cross sell calculator to reach maximum discount and once brokers are gone so will the lower rates that we achieve for our consumers by creating healthy competition.
    If everyone sold every mortgage at 10BPS higher less lenders would be leaving the channel and banks would be opening the doors to more broker originations… Banks don’t like not posting higher profits quater over quarter, and when they see margins shrinking they try to correct that trend… we are doing this to our selves…
    Sorry for the rant!

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