News from Canada's Mortgage Experts
Category: Current Rates
Don’t be fooled by low 5 year fixed mortgage rates!
Friday, Jan. 13, 2012
Posted by: Vince Gaetano
On January 18th, 2012, MonsterMortgage.ca received calls from both Rob Carrick of the Globe and Mail and Gary Marr of the National Post discussing ING Direct’s 10 year 3.89% product.
This historical low on the fixed 10 year mortgage had made an impression at the MonsterMortgage.ca offices as it is the first time ever that a 10 year fixed rate mortgage product has been under 4%. Both journalists seemed keen on the dramatic slide in the 5 year product at BMO, which is at 2.99%; however, it was important to give them the facts BMO was not telling consumers about the restrictive nature of this low rate product, and MonsterMortgage.ca used ING’s 10 year product to help highlight the point.
As mentioned, the journalists started to see less of the shine on the BMO product and took notice of the dramatic decline in the 10 year product at ING DIRECT. The ING product solves the fear of the five year outlook (i.e., the unknown of where will rates be) and it has a full 25% yearly prepayment option and long term portability if you plan to move homes during the term of your mortgage – three month penalty only after the 5 year anniversary! That’s pretty good. We believe that MonsterMortgage.ca was able to provide concrete info as to why ING has overshadowed BMO this week in the mortgage news. The 10 year fixed rate at 3.89% is available only to a select number of mortgage brokers. Hopefully tomorrow’s news articles will help even more consumers understand the difference between the restrictive product and the more flexible 10 year rate product.
The 2.99% rate is an excellent lure into an inflexible mortgage; here are the key restrictions that home-owners may unknowingly be locking themselves into…
- There are hefty penalty clauses
- The maximum amortization is only 25 years
- It is somewhat restrictive with its prepayments – only 10% prepayment per year and it only increases 10% of your prepayment per year
- Here is what BMO themselves have said about their product – "Full repayment before maturity can only occur if property is sold to an unrelated purchaser at fair market value or if the mortgage is renewed or refinanced into another BMO mortgage product.”
Remember, when considering a mortgage for your property, you need to look at more than just the interest rate. Your mortgage is one of the biggest investments you will make so be sure you also consider the terms and conditions of the mortgage product and have your mortgage broker highlight what the pros and cons are for you. Flexibility is the key in a mortgage and although the BMO product is fairly priced it handcuffs consumers and will ultimately cost you more money down the road, particularly when you compare it to a 10 year product like the one being offered by ING.
Comments:
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@TheAnonMonster
Written on Wed. February 01st, 2012. 11:40AM
Hey SN - good point. As the economy recovers, we should expect to see interest rates increase; however, without a crystal ball, its hard to predict when this will be. A 10 year fixed with a very good rate and friendly options takes away the guessing from this.
@Anonymous - Unfortunately, or fortunately - depending how you look at it - a broker has a few distinct advantages when dealing with a bank versus the average loyal, long-time customer with multiple accounts.
The truth is that banks are afraid of Monsters...so they offer MonsterMortgage.ca some great deals! - Just kidding.
On a general level, here are a couple of reasons:
1 - A strong mortgage broker has the advantage of access to various banks & products; banks and lenders are aware of this and tend to put their best foot forward.
2 - The bank might count on facing no resistance from their loyal customer; after all, they know you've been loyal and might not count on you trying to negotiate down or jump ship to a competing lender.
Thanks for all the comments so far.
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Anonymous
Written on Mon. January 30th, 2012. 04:55PM
Why would ING offer 3.89% to monster customers and offer 3.99% to there customer?
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SN
Written on Sat. January 28th, 2012. 03:01PM
I am also a huge fan of the Veriable Rates, but for now a long term 10 year
Fixed Rate is appealing to young buyers,
but BE Warned-shop around. I would deal with Monster Mortgage to get the best many quotes, I've been with my Bank for many years as a customer for Bank Accounts, never a Mortgage-my bank doesn't like that much. Rates will go up in order for our Economy to recover. -
The Anonymous Monster
Written on Fri. January 27th, 2012. 01:10PM
Personally think it is great to see discussion on such issues; so thanks for the comments.
@Variable: Am a big variable rate fan, but the best deals on the current market are nowhere near the rate you were able to secure at the time - the argument for fixed is quite good.
@DGF: That is good news. As long as the terms are clear and pre-payment restrictions don't hamper you. I think the main issue here is transparency & disclosure - just having the full understanding of the mortgage you're getting into.
@AT08: After being in the product for 5 years, your penalty is only three months interest - allows you to reevaluate your mortgage down the line at a modest fee.
This is useful in the case that - crossing my fingers - in 5-6 years the economy is back in full swing and we see interest rates around the 5%-7%. A low 10 year rate puts you in a great position.
@M: Thanks for the comment - best of luck in your search for the right offer.
@PV: Good to hear you're getting great service!
Might be repeating myself, but understanding the restrictions and what you can and cannot do is among the most valuable pieces of knowledge you can have when it comes to your personal finances.
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PV
Written on Fri. January 27th, 2012. 09:09AM
PV: I am with BMO for years, and I am perfectly Happy ! Great service, great everything..and let me brag about it, I have prime minus 0.9 variable...I believe for ordinary people like me those "restriction" are just a request for loyalty . You guys at Monster are great anyway (I used your services in the past) and no need for bashing the competition.
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M
Written on Thu. January 26th, 2012. 05:43PM
Scotia offered me 2.99 for 4 yrs ..I was surprised but only 3.49 for 5 hmmm ing's 10 yr at 3 .99 is not bad
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AT08
Written on Thu. January 26th, 2012. 05:01PM
What's the max amort of the ing product?
No penalty before the 5 year anniversary for ing, now that seems too good to be true. -
variable
Written on Thu. January 26th, 2012. 04:48PM
Anyone who locks into their rate is a sucker anyway!! Variable is the only way to go if you really want to pay down your mortgage.. ive been happily paying 2.2% for the past 2 years now! You guys can go ahead and enjoy 2.99% suckas !!!
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DGF
Written on Thu. January 26th, 2012. 03:08PM
When I called BMO they were very clear about the restrictions. Their fixed rate is lower than my current variable rate. So I'm going to take it. Unless I win the lottery I have no plans to drop more than 10% of the principle per year on my mortgage. If I had that kind of money I wouldn't have a mortgage.
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The Anonymous Monster
Written on Thu. January 26th, 2012. 10:40AM
Hey EE, thanks for taking the time to visit.
Correct - some banks may offer you 2.99 for 4 years under certain conditions; however, it isn't necessarily true that you might get that offer without some negotiation or discernment.
