January 21, 2012

Mortgage Interest Rate Review January 19th 2012

Late last week while I was away in Punta Cana for the Mortgage Centre Annual conference lenders announced their newest fixed rate mortgages. Lenders are now offering 3.15% for a fixed 5 year rate mortgage which has again set a new low for fixed rate mortgages. Some borrowers might be surprised that the new rates announced by lenders aren’t quite as close to BMO’s 2.99% as they might have hoped. The truth is that at 2.99% the bank is not making any profit from the mortgage after considering their borrowing costs and administration costs. So the question begs to be asked, why would the bank be giving money away for free? The answer is two fold.

1) BMO has been losing mortgage market share over the past couple of years. Mortgage market share is important to the bank because inevitably their mortgage borrowers will open investment, savings & chequing accounts which drive profits.

2) The move to give money away is very intentional this time of the year because it is the beginning of RRSP season. The more people to visit a BMO branch the more opportunity they will have to cross sell RRSPs and other products.

Son of a broker’s pick: You can’t go wrong with the fixed 5 year at 3.15% and if you are feeling particularily rate sensitive the fixed 4 year at 2.99% is the answer. You get all the bells and whistles with out the restrictions of BMO’s offer.