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January 2012

BMO Sparks Mortgage Rate War


BMO is offering a rock-bottom interest rate but it is for a limited-time. (They've only given you two weeks!) The Bank of Montreal announced last Thursday that it had lowered its rate on five-year fixed mortgages to 2.99 per cent, an all-time record low in Canada. (Historically, five-year fixed mortgages were the most common type obtained by home buyers and are used by the banks as a benchmark for borrowing costs.)

Of course, a great deal such as BMO's record-low mortgage rate does come with a few hitches. BMO has set an application deadline of January 25, 2012 (so you need to decide on your next purchase quickly). Next, the offer is only valid on mortgages with an amortization limit of 25 years. In addition, it has placed a cap on the maximum yearly lump-sum payment one can make at 10 per cent of the principal. (There may be other limitations that we are unaware aware of. For complete details, speak with BMO directly.)

As anticipated, this latest mortgage cut by BMO has triggered increased competition among many of the other major banks as they battle for a share of the shrinking housing market.

For example, RBC Royal Bank announced effective January 14, 2012 a four-year special 2.99 per cent fixed rate mortgage offer and a seven-year special 3.99 per cent fixed rate mortgage offer. Although they have matched the low 2.99% rate, they are only offering it for a four-year term, unlike BMO's five-year term.

 

"We are pleased to offer all Canadians flexible mortgage options at outstanding value. Canadians can choose between our great low four-year rate at 2.99 per cent or affordable protection at 3.99 per cent for seven years. They can even combine the two within our flexible RBC Homeline Plan," said Marcia Moffat, Head, Home Equity Financing, RBC. "All RBC mortgages come with amortizations of up to 30 years and full prepayment privileges. Also, Canadians can take advantage of our "double up" feature to become debt free faster."

 

RBC's rate is a discount off of posted rates and is only available on new mortgage applications made until February 29, 2012. Mortgage must be funded by April 30, 2012.

 

Following in RBC's footsteps, TD Canada Trust is currently offering a special offer that echos that of RBC.

 

These offers comes at a time when the big banks are pressuring Ottawa to lower the maximum amortization period (the number of years a person has to pay off a mortgage), now set at 30.  40 year amortization periods were available during the real estate boom years but persistent worries over the accumulated debt of Canadians convinced the federal government to lower it over the past two years.

Eric Lascelles (RBC Global Asset Management) stated that the caveat for homeowners is to buy what they can afford because when rates rise again and the mortgage needs to be renewed, refinancing costs can be overwhelming.

The BMO rate cut is good news for people shopping for a home and bad news for those worried about a potential housing bubble, says a Queen's University professor who specializes in real estate.

In our opinion (Tess and Jason), these rates offer an excellent opportunity for those buyers who where considering a purchase at some point this year to take full advantage of the lender's offers and purchase now. We must also emphasize that any home purchase must be very carefully calculated, as this is one of the biggest purchases most of us will ever make and its long term value to the buyer must be considered.

With files from CTVNews.ca, BMO.com & RBC - Media Newsroom

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