Mortgages: To 2.99% and below!

We won’t be going too much below 2.99%, but BMO has put the heat on again to get the consumers thinking and the competitors talking.

The BMO no-fills product will attract some clientele, however, even the BMO Mortgage Specialist are aware that this product isn’t for everyone. One of my clients, a BMO account holder for over a decade went to check it out in January when they launched the first ever 5-year fixed rate below 3%. The mortgage specialist honorably told her that this was not a product for her.

The product offers a limited 25-year amortization, 10% lump sum payment per year and/or 10% increase on monthly payments, no skip payment options, no additional access to products such as credit lines, and a fully locked product restricting any access to equity. This is not for those who are concerned with the changes that come with living life.

It has been mentioned that first-time homebuyers, rental property owners and owners of second homes may find this product suitable. However, even those in my opinion would be have to be very specific cases, with individuals in predictable futures to be able to determine what the next 5 years will bring.

For me, first-time homebuyers should not be included in this list. They are a vulnerable group, not due to foreclosure concerns, but that they will likely undergo changes involving their home prior to end of their 5-year term. Entering a fully closed, restricted mortgage can drastically impact their real estate investment strategy by eliminating a number of options (such as using equity for reinvestment or upgrading) and ability to seek other services.

Rental properties and second homes are potentially good options for this product. It would keep the payments consistent and at a low interest rate, however, the borrower would need ensure that they are fine with the invested equity being locked in for the next 5 years.

On average, households make changes to their mortgage every 3.6 years.  This means that only a small percentage actually complete a 5-year term.  Therefore, having flexibility with a mortgage, in most cases makes sense.

With the restricted use of this product, the consensus from many in the mortgage industry is that BMO is using this 2.99% product to bring clients into the bank, not to sell the 2.99% product, but to “up sell” or “cross-sell” them on a more appropriate and flexible product listed at a higher market price. A marketing approach to get consumers to react to the low rates, but then sold on a mortgage that is more aligned with their needs at a much greater cost.

As for my client, I’m not sure if the BMO specialist tried to sell her to another product, however, I know my client quickly realized the value of having flexible options and the level of service she was receiving from the Mortgage Professional (Broker) channel. Having over 40 lenders to choose from, there is always a product, service and lender that can be the right fit with competitive rates. Shortly after her visit to BMO we found her a full-frills 5-year product, with flexibility and options to suit her unknown future at a very comparable and competitive rate of 3.09%.

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