The Bank of Montreal may have cleared it with Ottawa before they started the second Canadian mortgage war in three months, but there are still many critics who say their timing couldn’t be worse. For the past two years the Canadian government has been warning us about our ever-increasing levels of household debt, with louder warnings surrounding mortgages and HELOCs in particular. Then enter BMO, with their offer that’s too good to refuse, and one that’s going to have people carrying even more debt for the next 25 years. But, BMO chief executive, Bill Downe, says that the bank’s offer is only going to help Canadians with their debt problem, not hurt them even more.
But, Mr. Downe points to the rising cost of Toronto mortgages, and the fact that those prices are about to come in for a “soft landing” as the real problem, and sees the bank’s offer as a real solution. Right now (if you’ve been able to forget with every other commercial on TV blaring the offer) the bank is offering 2.99% on their fixed rate 5-year mortgages, and an unbelievable 3.99% on their fixed rate 10-year mortgages. But, and the big but, that Mr. Downe says makes these offers especially attractive when household debt is such a concern is their short amortization periods – only 25 years, unlike the 30 years that most other banks are offering.
That, Mr. Downe says, allows Canadians to build equity in their home faster because the payments will be slightly larger than with a 30-year amortization; and it will help them get out of debt faster – a whole five years faster! And when you consider the amount of principal and interest that would be paid during that meantime, it really does make quite a bit of difference. Of course, BMO’s offer also comes with a fixed rate, which will protect homeowners even if the historically low overnight lending rate increases – something it’s going to do at some point. The longer people sign on for (5 or 10 years,) the longer they’re protected.
It’s this last point that Mr. Downe says is going to help Canadians the most. When defending the banks offer on Tuesday he said, “With a shorter amortization, homeowners are able to build equity faster and have the confidence of knowing what their monthly payments will be, no matter where interest rates go.”
Last time the mortgage war (or mortgage party, depending on which side of it you’re on) was happening in Canada, most of the other major lenders pulled out early, with only BMO sticking to its word and keeping it on offer for the entire time. This time, even though the other banks covered themselves with a “we may pull this offer at any time without warning” statement, they’re still in there duking it out. While their offers don’t have an actual expiry date, BMO’s offer is only going to be on the table until next Wednesday, March 28.
