– 5 year fixed @ 2.99% (Our rate – 3.19% full featured!)
– 10 year fixed @ 3.99%.(Our rate is already lower! – 3.89% and full featured!)
The devil, as the always say, is in the details as these mortgages come with significant restrictions:
1. A Lower Maximum Amortization – 25 years maximum versus at least 30 years elsewhere:
- This hurts first time buyers, who need the best rate and the 30 year amortization to qualify!
- We often advise clients to set the maximum amortization and increase their payments using the pre-payment allowance. This practice allows for a fall-back to a lower payment if the client experiences income difficulties. The restricted amortization and pre-payment ability (see below) mitigate this opportunity.
2. Less Lump-sum Pre-payment Ability – 10% maximum per year:
- As opposed to 15% – 20% in the full featured Mortgages that we direct our clients to.
3. A Smaller Payment Increase Option – Up to 10%, once per year:
- Again, 15% – 20% is standard in the full featured Mortgages that we direct our clients to.
4. A Locked Term – Fully closed for 5 years unless you sell the property, refinance or early renew with BMO:
- The average actual length of a 5 year mortgage term is approximately 3.2 years! That is, the average 5 year fixed rate mortgage holder refinances or switches their mortgage after 3.2 years. That’s not possible with these terms
- Once captive with BMO, the refinance or early renewal rates that BMO offers are unlikely to be competitive in the industry!
A real example:
- $250,000 mortgage, 25 year amortization, 2.99% (Restricted Terms) vs 3.19% (Full Featured Terms):
- The monthly payments are only $25.79 more with the full featured rate!
- The mortgage balance after 5 years is only $815.40 more with the full featured rate!
As always, we urge caution when clients are considering “Low Rate” or “No Frills” Mortgages, and ask that clients Contact Us for a frank discussion of the options and implications of each.