With the spring real estate market heating up, more and more of Canada’s big banks are ratcheting up their efforts to attract first-time home buyers. Falling bond yields, which impact long-term fixed rates, have allowed big banks to slash their five-year fixed mortgage rates, like the Bank of Montreal’s reduction to 2.99%.
While a 2.99% five-year fixed mortgage sounds enticing and may even get some potential home buyers to step onto the property ladder, Canadalend.com warns that there’s more to this than meets the eye. In fact, there are a few things home buyers chasing low mortgage rates need to be aware of.
For starters, the ultra-low interest rates being offered by the Bank of Montreal is only open until April 17, and even then, it comes with some pretty unconventional terms. For example, you can’t break this particular 2.99% mortgage before it comes up for renewal in five years unless you sell the property, refinance with the Bank of Montreal, or renew with another Bank of Montreal product. This means that if you sign with the Bank of Montreal, you’re stuck dealing with them.
In addition, the Bank of Montreal will only hold the 2.99% rate for 90 days, compared to the 120 days with most lenders. Normally, homeowners can prepay 20% of the mortgage annually without penalty and increase their payments by 20% a year. Sign on the dotted line with Bank of Montreal, however, and you’re stranded with just 10% on both types of payments.
The fact of the matter is, Canada’s big banks aside, home buyers can do better than 2.99% if they want. Unfortunately, Canada’s big banks aren’t really all that objective and will only point you toward their own lending products, whether they’re suited for your lifestyle and financial needs or not.
Canada’s big banks also won’t tell you that you can get lower rates on a five-year fixed mortgage somewhere else and with better terms. As a first-time home buyer, you might be more interested in a variable mortgage, as they are trading well below 2.99%. If the potential for rising interest rates doesn’t make you nervous, a variable mortgage is a great way to help chip away at the overall cost of a house.
Go to a big bank simply because of the low rates and you could end up paying huge penalties should something unexpected happen, because banks penalize their clients if they break a mortgage before it comes up for review. Why? Because big banks have to somehow recoup the interest payments it loses out on when you break a mortgage contract.
The mortgage experts at Canadalend.com know that because buying a home is one of your biggest investments, it’s important to not just get the best rate, but also get the best conditions; after all, there are a lot of non-big-bank lenders who offer better variable and fixed rates with better conditions, including softer penalties for breaking a mortgage.
Canada’s big banks are not unlike Vegas; no matter how good an offer looks, it always benefits the house. Whereas the big banks only push their own products, the independent, licensed agents at Canadalend.com search out hundreds of banks and lenders and help you get the best overall mortgage possible.