Mortgage Blog

BMO Mortgage Pro's and Con's

April 22, 2020 | Posted by: Andrew Wade

BMO Mortgage Rates

BMO Bank of Montreal (BMO Financial Group) is Canada's oldest bank having officially started conducted business in 1817. It is currently the fourth-largest bank in the country by market capitalization.

The bank has 900+ branches throughout Canada that serve more than seven million customers.

BMO has a mortgage portfolio of around $106+ billion (as of Q2 2018) and sells its mortgage products through mortgage specialists and branches. The bank does not participate in the mortgage broker market.

BMO is known for its headline-making rate specials (it was the first big bank to 2.99% on a 5-year fixed in 2012) and low-frills mortgage (the 'Smart Fixed' mortgage). But most of the time, its rates don't stray far from the pack.

BMO Posted Rates

Like the other big banks, BMO offers three different types of mortgage rates: posted rates, featured rates and discretionary rates.

Very few customers (at any bank) pay full posted rates, since they are inflated rates that are mainly used as a reference rate for calculating discounts and prepayment penalties.

BMO's featured rates are discounted limited-time offers that the bank makes available from time to time. These rates are much lower than BMO's posted rates, but generally higher than the best rates in the overall market.

Even better than the bank's featured rates, however, are discretionary rates. They are considered the best bank mortgage rates. Discretionary rates are available only to well-qualified borrowers and usually require negotiation with the bank.

BMO Mortgages

BMO offers the standard range of mortgage products that can be found at most of the other big banks and mortgage lenders. These include the most common 1- to 10-year fixed rates, as well as 3-year and 5-year variable rates. BMO also offers hybrid and cash back mortgages, and even an 18-year open mortgage (although the rate is so bad that virtually nobody gets one).

BMO's marquee mortgage product is its 5-year Smart Fixed mortgage (previously called the 'Low Rate Mortgage'). The product, which offered among the lowest 5-year fixed rates available among the big banks, drew the ire of the late Finance Minister Jim Flaherty when the bank offered it as a 2.99% promotion at a time when the government was trying to slow borrowing. The bank later changed the product name, but the features remain largely the same. BMO also offers a 10-year term with this product.

As of this writing, BMO's low-frills rate:

• Comes with lower prepayment privileges (10% annually vs. BMO's normal 20%)
• Has a maximum 25-year maximum amortization (vs. 30 years for most of BMO's other conventional products
• Doesn't come with BMO's 'Cash Account'
• Doesn't offer the Skip-a-Payment feature, and
• Bases its penalty on posted rates, which results in a higher prepayment charge compared to some other lenders.

The majority of BMO's mortgage rates include an industry-leading 130-day rate hold and flexible 20% lump sum and 20% payment increase prepayment features. Unlike some banks, you can make multiple prepayments in a given year. If you prepay more than the allowed amount you will face a penalty, in addition to a discharge/assignment fee ($75 in B.C., no fee in Alberta or Quebec, $200+ in other provinces).

BMO borrowers also enjoy an annual skip-a-payment option, as well as a Family Care Option that permits yot to skip up to four monthly mortgage payments 'if you or your partner must leave your job to care for a new baby or a sick family member.' (Not available with the Smart Fixed mortgage)

Like most big banks, BMO is now upcharging for amortizations over 25 years. At the time this is being written, BMO's surcharge is 10 basis points extra for a 30-year amortization, for example.

The company's mortgage clients have several payment frequency options that include: monthly, accelerated weekly or bi-weekly.

BMO's Variable-rate Mortgage

The banks variable mortgage may be converted to a fixed rate anytime. But keep in mind you'll rarely get much better than the advertised rates when converting.

BMO's variable-rate mortgages have fixed payments. That means if prime rate goes up, you'll pay less principal and more interest, and vice versa. The payment always stays the same (unles rates rise so much that you're not covering the interest due).

Factoid: In 2018, BMO became the first Big 6 bank to widely advertise a variable rate of prime - 1.00%.

BMO Homeowner ReadiLine Line of Credit

BMO customers who want to access the equity in their home can do so with BMO's Homeowner ReadiLine line of credit.

This readvanceable HELOC allows homeowners to access up to 80% of the value of their home. Those funds can then be used for everything from home improvements/renovations or consolidating high-interest debt, to funding a business and investment purposes.

Like all other banks, a HELOC requires the homeowner to have at least 20% equity in the home and only 65% of the home's value can be in the form of a revolving line of credit. Payments on the line of credit can be as low as interest-only. You can also have locked-in portions that are just like regular mortgages.

The best part about having a mortgage in a ReadiLine is readvanceability. That means, as you pay off the mortgage portion, those funds are available to reborrow from the line of credit portion. This can come in handy as a low-cost source of funds for investing, a second property down payment, etc.

BMO Cash Account

This is BMO's best mortgage feature by far. The cash account lets you re-borrow your mortgage prepayments (in increments of $2,500). The kicker is, you get to do so at the same rate as your regular mortgage. In other words, BMO says: 'The re-borrowed funds are added to your mortgage principal at your existing interest rate for the remainder of the term.'

BMO's cash account offers a tremendously low-cost source of funds. It takes much of the risk out of making prepayments given you can reborrow them in an emergency.

No other major lender in Canada offers this feature.

How to Get a BMO Mortgage

BMO sells its own branded mortgages through its branches, mobile mortgage specialists and through its call centre.

Unlike some of the other big banks, BMO does not participate in the mortgage broker channel, which it exited in 2007.

If you're switching a mortgage to BMO, keep in mind the bank will often pay your appraisal and legal (registration) fees. So make sure you ask.

Using a BMO Mobile Mortgage Specialist

The majority of BMO's mortgage are sold through the bank's mobile mortgage specialists who receive commissions from each mortgage product they sell. Mobile mortgage specialists can forego some of that commission to 'buy down' your interest rate the same way a mortgage broker can. This is important to keep in mind when negotiating your rate.

Additional notes about mortgage specialists:

• Mortgage specialists typically only serve new bank customers and not existing homeowners whose mortgages are up for renewal. For renewals, you need to go into a branch or call BMO's call centre.

• You can schedule a call with a BMO mortgage specialist via this link.

BMO Pre-Approvals

BMO offers an easy mortgage pre-approval process for its rates, which come with a standard 130-day rate hold. Beware, however, the bank is not know for offering its lowest discretionary rates on pre-approvals.

You can simply fill out this short form and a BMO Mortgage Advisor will contact you within one business day to process your mortgage application.

How to Get the Best BMO Mortgage Rate

Like almost all rates, BMO's mortgage rates can be negotiated. Buyers should never take the first rate offered by the bank.

To be in a better position for negotiating, be sure to compare the rate offered to you with rates for comparable terms and features at other lenders.

Remember that bank specialists and their employers want your business and are usually willing to come down on rate in order to secure it. If they refuse to budge, tell them you plan to shop around at other lenders.

Renewing an BMO Mortgage

Don't expect the bank's best discretionary pricing to apply to you if you are renewing your mortgage. Sadly, the best rates are typically reserved to woo new clients. But at the same time, no bank client should expect to pay posted rates at their renewal.

When negotiating you want the best rate possible, but remember to keep your expectations realistic. The bank knows most people don't like the hassle of switching lenders. So it often quotes special offer rates (which aren't so special) as the first offer.

As noted above, don't be afraid to consider other lenders should the bank not be willing to play ball during your negotiations. For this reason i's advised to start the mortgage renewal process at least 90-120 days in advance of your maturity date.

BMO Pros

These are some of the benefits of getting a mortgage with BMO:

• Reputation: Being among Canada's top banks, BMO has a strong reputation thanks to its tight control procedures in place to protect the interest of its clients.
• Full-service: Dealing with one of the Big 6 banks may have its drawbacks, but one positive is one-stop access to additional banking products, such as banking/savings accounts, investment accounts or additional secured loans.
• Convenience: A BMO mortgage is great for those who value face-to-face meetings. Most BMO mortgage specialists can meet you at a location of your choosing to answer questions about your application. The bank also offers the convenience of managing your mortgage from home with 24/7 online access.
• Rate Discretion: Despite not have the market's best rates, most of the time, BMO is able to negotiate on a case-by-case basis. That's even more true if you do a large amount of banking with the company or have a large mortgage. In some cases, we've even heard of clients getting low-frills rates on BMO's full-featured mortgages.
• BMO's Cash Account: Possibly the most innovative mortgage feature in Canada.
• Branch Access: With more than 900+ branches (as of January 2018) across Canada, scheduling an in-person meeting is easy no matter where you are.

BMO Cons

Likewise, here are some of the disadvantages of getting a mortgage from BMO:

• Limited Advice: This is a criticism that can be made equally against any of the big banks. Since BMO mortgage specialists only sell BMO mortgage products, chances are low that they would show a prospective client an objective comparison of (potentially superior) products offered by the bank's competition.
• Potentially Higher Rates: It's a pretty well-known fact that most rates offered by the Big 6 banks aren't typically the most competitive rates on the market. Not even their 'special' or 'featured' rates are the lowest, generally speaking.
• Fixed Penalties Can be Higher: Breaking your BMO mortgage early often triggers a prepayment charge known as an IRD (Interest Rate Differential) Penalty. IRD penalties charged by the big banks are notoriously high because they are based on the bank's high posted rates. Many of BMO's competitors base their prepayment charges on more realistic rates, which are more favourable to the client.
• Restrictive Home Protector Insurance: Like the other Big 6 banks, BMO creditor life insurance is not portable to a new lender. Should you need to switch to another lender that's offering a better rate at renewal, you may be required to pay higher premiums in order to keep insured (since creditor life mortgage insurance is based on your age and health condition). Keep this in mind particularly if you get sick after you take out your original policy.

BMO Mortgage Calculators

Like the other big banks, BMO offers a selection of mortgage calculators that let you calculate everything from mortgage payments and mortgage affordability, to prepayment charges and insurance coverage options.

You can find BMO's mortgage calculators here.

What is BMO's Prime Rate?

BMO and the other big banks together set the country's benchmark prime rate. Prime rate usually changes when the Bank of Canada's overnight rate is raised or lowered.

BMO's prime generally matches that of other big banks, but it technically does not have to. In fact, BMO attracted unwanted headlines when for roughly 18 months in the early 1990s it held its prime lending rate 25 basis points below the comparable rate at the other big banks.

Click here to see Canada's current prime rate.

Misc. BMO Stats

• Mortgage Portfolio: The bank's mortgage portfolio includes more than $106 billion in residential loans (as of Q2 2018).

• Branches: 900+
• Provinces Served: All (BMO also has more than 600 BMO Harris branches in the U.S.)

Source:Rate spy 

Back to Main Blog Page