Big Bank Interest Rate Changes Can Be Deceiving
Big bank interest rate changes are hard to ignore when they drop their rates. They have marketing departments that shout out the news through press releases, print ads and television commercials.
Major banks often make a big deal about dropping their rates below 3%. The truth of the matter is that there are plenty of mortgages available at that rate, or lower. Mortgage brokers make it their business to shop around and get the best rate possible for their clients. Rates in the range of 2.82 per cent to 2.99 per cent are not uncommon. We have current rates posted on our website here if you want to view the currently available.
Don’t be fooled by BMO’s recent advertising of their 5yr fixed at 2.99%…There are many strings attached with it, that are not in the best interest of the customer.
Details of BMO’s offer below:
- Max 25 yr am,
- Term is fully closed,
- No refi’s or early renewals
- IRD is typically a min of 4%
- Lower prepayment options
- Less payment frequency options
So much for their tag line Get Home Free Faster! Clients have already reported that the restrictive terms have not been fully disclosed to them.
This type of advertising can bamboozle someone who is looking for a mortgage as they are so focused on what looks like a fabulous interest rate that they forget to look at the terms. Term clauses can include locking in the mortgage for the entire five years of the mortgage, unless you choose to do business with them again. Since 70 per cent of people adjust their five-year fixed rate mortgage before maturity to refinance of move into a bigger house. This kind of clause can become a deal breaker down the road.
Often times, the only way to get out of the locked in mortgage is to pay steep penalties. How steep you ask? A normal penalty for getting out of a locked in mortgage is three months interest. Penalties imposed by the big banks can be as much as three times higher. In theory, these penalties are to compensate a lender for the interest that is lost when the contract is ended early. In reality the inflated amounts make it next to impossible for the homeowner to use another lender.
Beware of deceptive clauses regarding lump sum payments too. Standard mortgages allow for up to 20% of the mortgage to be paid without penalty on the anniversary date of your loan. A standard mortgage also allows you to increase your monthly payment by 20% per year without penalty. Many of the big banks allow only 10% for each of these, so if you are planning on buying down your mortgage as quickly as possible, this is a huge consideration. Finally, most big banks do not allow you to amortize your mortgage over 25 years. A typical mortgage can go up to 30 years if you have a down payment of 20 per cent or more. If you have questions about this, contact us here.
So, while the big splash of big bank advertising is hard to miss. Please don’t forget to look at the fine print before making a decision. Brokers can help you sift through the rhetoric to find you an extremely competitive rate and the best possible terms too. They have access to many lenders and can meet, or surpass, what the big banks have to offer, without hiding the terms behind an interest rate smokescreen.
If you have questions about finding the right type of mortgage, we can help customize one just for you. We offer better rates and more flexible terms than you can get at the bank. Contact us here to learn more.