HAPPY ST. PATRICK'S DAY
MARCH 17, 2013
The Competitive Mortgage Market- It Is Not Always About Rate
For the past year the Bank of Canada has been warning that high household debt levels, the bulk of which come from mortgages, are the largest risk facing the country’s economy. BMO’s recent rate cut prompted Finance Minister Jim Flaherty to issue a warning to the country’s banks that he expects prudent lending practices – not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States.
It’s clear that in our current market where homes sales have slowed and the spring buying market is kicking into gear, that competition is strong among lenders. Mortgage lending is a large part of their bottom lines. Gord Nixon, CEO of Royal Bank of Canada, the country’s largest mortgage lender said in a conference recently, “There is no question that the Canadian banking industry is facing slightly slower growth as a result of slower mortgage demand.”
Lower rates could interest more buyers this spring, and might encourage some buyers to take out larger mortgages than they otherwise would. So, despite the government’s rule changes this past year, and despite its urgings to lenders, growing market share triumphs.
According to Canaccord Genuity analyst Mario Mendonca, BMO has been seeking to bolster its mortgage sales since it stopped using mortgage brokers about four years ago. It still has the lowest mortgage market share among the five largest banks.
The interesting part of all this is that some lenders’ fixed rates are actually lower than what BMO has advertised – the difference is that BMO actually announced it. For the past month or so mortgage brokers have had access to rates trending down from 3.04% to 2.89% for 5-year fixed to 2.69% for 3-year rates.
Mortgage consumers should also look at BMO’s product and read the fine lines because there are restrictions, which, of course, are not advertised. They include the following:
- You only get 10%/10% prepayment privileges. many other lenders give homeowners the option to increase their monthly payments by 20% or more each year, as well as make lump-sum payments on the original mortgage in that same percentage range.
- You can’t skip a payment or access a mortgage cash account. Skipping a payment, should you need to, is not an option.
- You can’t transfer your mortgage to another lender until your term is up. Throughout your 5-year term, the only way you can refinance, transfer or payoff the balance of your mortgage, is if you stay with BMO while doing so, or sell your home. It’s not uncommon for homeowners to break their mortgages early.
(from TMG, Mortgage Blog March 7, 2013)
** now with a side note to this, I do have better rates than the 2.99% quoted in the article for qualified clients... the biggest difference than this is that they still have full bells and whistles. What I mean by that, is 15/20% pre payment options, match a payment and raise your payments by the 15/20%, as well as portability etc.... this article is right, it is not always about rate, however rate does help. You just need to be careful that rate is not ALL you focus on.....you want the rate with all the trimmings. Let me explain.... what would Christmas dinner be if you only had the Turkey? Turkey is a focal point for sure, but is that all that is needed? What about the potatoes, cranberry, gravy, pumpkin pie etc..... all together it makes Christmas Dinner ... same goes for your mortgage. You need the rate, along with all the bits and pieces :) It is something you are going to have for quite some time... but you do not want it to be forever and it needs to be done so it weathers lifes changes.
Talking to a mortgage agent is your best option in learning all your options! Give me a call today! I think "Outside of the Box" .
Ariana Leroux
Licensed Mortgage Agent with TMG
780.952.4087 (mobile)
mortgages@arianaleroux.com
www.arianaleroux.com
