BMO is advertising a 5 year fixed rate mortgage for 2.99%. But it does come with some limitations.
“That’s the lowest anybody has ever seen from one of the major lenders ever,” said Rob McLister, editor of Canadian Mortgage Trends.The amount of people who pay in lump sums is a small amount, so for people renewing their mortgage or first time buyers, this fixed rate will not get any better.
He said the BMO product called the “low rate mortgage” comes with some reduced flexibility. Instead of being able to pay 20% of the mortgage down in one year in a lump sum payment, you can only reduce by 10%. You can also only increase your monthly payment by 10% instead of the traditional 20%.
The product is being offered on a limited basis from Jan. 12 to Jan. 25, but Mr. McLister doesn’t expect that to mean much because already the Royal Bank of Canada has pledged to mortgage brokers to match the BMO decrease.
Variable rates have always been cheaper but in the last few months the discount has all but disappeared. And with BMO's discount on the fixed rate mortgage, a variable rate is now more expensive at 3.1% from BMO. Of course, if one goes to a mortgage broker, a variable can be had for 2.75%.
So why is this happening?
The 5 year Government of Canada bond yield is at historic lows at 1.3%.