Mortgage Wars: The BMO 2.99% Fixed Mortgage Rate and What it Means for the Market

 

 

mortgage wars

 

With the recent announcement by BMO that they will be cutting their 5-year Fixed mortgage rate by a full 50 basis points to 2.99%, investors and homebuyers alike are trying to decide exactly what this means for them, their portfolios and the real estate market in their area. So what do you do when you some tough questions and need answers? You go to the experts. , Founding Partner and Senior Analyst at the Real Estate Investment Network, weighs in on four of the major questions surrounding this recent announcement.

 

1. What’s behind BMO lowering its 5 year mortgage rate?

 

These rates (and even lower ones) have been available to consumers for a number of months – if they had asked. This announcement is all about marketing and market share and by the way has NOTHING to do with Jim Flaherty retiring. Now everyone is talking about BMO’s hot new rate. However, mortgages aren’t just about rate, we all must be very aware of the terms of some of these mortgages such as pre-payment penalties and restrictions on moving it or paying it off (or extra payments). The bank’s extra profits will come in the back end with penalties and restrictions that most consumers don’t know about before it is too late.

 

2. How likely is it that all the other big banks will follow suit?

 

Banks will, and already have been, matching these low rates. Some may announce it publicly to ensure they are not left behind in the marketing of their products, while others will match it when the home buyer comes in and asks. The key here, once again is to ASK, not just about the lower rates, but what are the added restrictions this cheaper money brings along with it?

 

3. What’s the best way for consumers to take advantage of this?

 

The absolute best way to take advantage of this is quite simple. Stay with the variable rate mortgages because those are driven by the Bank of Canada’s review of Inflation (which is very low) and the strength of the economy across the country. The Bank of Canada has stated that they won’t be raising rates until at least 2015. Here’s where the strategy comes in: Once you choose the variable rate, you choose to make the higher monthly payments that are the equivalent to what you WOULD have paid if you had locked in.

 

The best part of this is that the difference between the two goes into YOUR pocket rather than the bank’s pocket. It speeds up the pay down of your mortgage with NO real extra cost to you. Then, when rates start to creep up in the future, you can lock in, but in the meantime you have accelerated the pay down on your mortgage.

 

4. Should I renegotiate?

 

As mentioned a little earlier, every mortgage is structured differently, penalties, pay down options, etc. are a critical part of every mortgage and sadly most consumers only focus on rate. Every home-owner should look at their mortgage at least once per year to see if paying the penalties makes financial sense given the current rates on offer. Either way, following that variable mortgage strategy I just mentioned will save consumer thousands of dollars.

 

don campbell began his investing career in 1985 with a house purchased in Mission, BC. He is Founding Partner and Senior Analyst at The Real Estate Investment Network and currently owns nearly 200 doors in BC and Alberta. A seven-time best-selling author, Don’s expertise and passion for teaching Canadians how to create wealth through real estate are far-reaching and have made an impact on the lives of thousands. Follow his daily insights on Twitter.

 

 

{{cta(‘56219eaa-958e-4ef6-b864-a08f5780ec7d’)}}

Keep up to date with the latest REIN news and events! Subscribe now:

Stay Connected

All Access

Twitter Feed