Tips, Advice, and Explanations from a Vancouver Mortgage Broker  

Bank of Montreal BMO 2.99% Rate Special – Explained by Vancouver Mortgage Broker Rowan Smith

Transcript of Video Blog:

Hi everybody. It’s Rowan Smith with the Mortgage Centre. I want to address Bank Montreal’s 2.99 percent offer that’s on the market and to explain some of the restrictions that people need to be aware of, some of the fine print. First off, yes, it’s one of the lowest rates historically ever offered, but it comes with some restrictions such as you can only have a 25 year amortization. Now, many people don’t think that this is a problem because they think I only want a 25 year amortization anyway and across a lot of Canada that is still absolutely the practice.

In Vancouver, however, where prices are as high as they are, many people require the 30 year amortization or in some cases the 35 year to qualify for the home, not because their situation isn’t sufficient to pay for it but because the price is just so high and perhaps for tax efficient reasons or one reason or another they’re not having the full amount of their company income declared in their personal taxes. If you’re one of those people, a 25 year amortization can provide a serious problem for you getting approved for this product because you’ll have to show additional income on paper in order to qualify.

Some of my other lenders still offer 30 or 35 year amortization even with a comparable rate. Bank of Montreal has also got prepayment privileges severely limited. For example, the standard of the industry is what we call 20/20. You can prepay up to 20 percent of the original mortgage amount and you can increase your payments by 20 percent per year. That can all be done penalty free. Bank of Montreal’s product limits it to 10 percent and 10 percent.

They’ve cut your prepayment privileges in half, which for some people may not seem like a big thing but if you’re thinking of paying your mortgage down quickly and aggressively, and you should, then those will limit your options. Lastly and most damning is their sales clause. Bank of Montreal’s placed a sales clause where the only way you can refinance out of their 2.99 percent mortgage is by refinancing either with them or by selling the home. You have to have a bona fide arm’s length sale.

You say where does this apply, what does this mean? If you imagine for a moment that you had a $500,000 and you had a mortgage of 300,000 and you were happily paying it along for the first couple of years with Bank of Montreal but then you saw a great offer come up because maybe rates continued downward. We know they’ve been downward for the last several years. If rates continue downward in three years you want to refinance out because you see that TD over there has a fantastic rate of 2.5 percent.

You approach Bank of Montreal and the answer is absolutely not. It’s not just a question of we’re going to charge you a penalty. The sales clause actually prohibits you from paying out the mortgage unless you’ve sold the home. You have to be very careful of this because if you want to borrow additional funds from Bank of Montreal that’s fine except that you realize you have nowhere to shop. You have no clout whatsoever in negotiation room and you’ll be forced to take whatever rate they offer you because you’ve accepted that original 2.99 which is a loss leader and below the market rates right now.

If you know somebody that’s looking at this Bank of Montreal product, 2.99 percent, I have a product which is lower that has none of these restrictions and doesn’t face any of the crazy sales clause, low prepayment options. All you have to do is give me a call. It’s Rowan Smith from the Mortgage Centre.


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