# BMO lowers mortgage rate to 2.99%



## carverman (Nov 8, 2010)

Looks like the banks are starting to realize that the economy is down and
people are hesitant to committing to 5 year terms at 5-6%.
They are announcing that their mortgage rates have been lowered to 2.99%
for 4 years in order to attract customers. I'm sure that the other chartered
banks will follow in order not to lose business.

The big issue is with lower interest rates and monthly payments, will consumers
take on more debt than they should (in housing)which could cause more
financial burdens or problems if the rates ever go up after the 4 year term.

We all know what happened in the US in 2008 with the sub prime mortgages..
and what that caused, when consumers bought housing they really couldn't
afford.


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## uptoolate (Oct 9, 2011)

I think that we can be pretty confident that human nature will see us through.

The sellers of the world know that people look at the monthly payment and not the total debt. Although the recent meltdown in the US might make some pause before taking on just a bit more debt I doubt that it will slow too many down. As far as thinking about what will happen when rates head back up and what the monthly payment will then be - fugetaboudit!

But who knows, maybe I am just being cynical and everyone will buy less house and use the great rates to accelerate their paydowns. Yes, I'm sure that is how it will work.


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## carverman (Nov 8, 2010)

uptoolate said:


> I think that we can be pretty confident that human nature will see us through.


Through what? You mean common sense in not taking on too much
household debt?

http://www.theglobeandmail.com/glob...ebt-surpasses-six-figure-mark/article1911236/

"For every aftertax $1000 of income..the Canadian consumer now owes
$1500."

Why is that? Human nature seeing them through? 



> The sellers of the world know that people look at the monthly payment and not the total debt. Although the recent meltdown in the US might make some pause before taking on just a bit more debt I doubt that it will slow too many down. As far as thinking about what will happen when rates head back up and what the monthly payment will then be - * fugetaboudit!*


Lower interest rates encourages more borrowing..because the way the gross income vs monthly payments are calculated by the banks..eager to get the consumer roped into a mortgage with a "carrot" and then squeezed after 4-5 years when the current "promotion" term is up.

While not considered dishonest..(who can accuse our banks of practicing dishonest tactics?)..
the banks lull the consumer into a false sense of easy credit, then whack them with 
higher interest rates after the term expires, even though the cost of everything is rising every
year. This is pure GREED on the part of the banks, because they don't care how much they impact the families when the true cost of owning that "overqualified mortgage" happens and the banks foreclose in the unsuspecting families in the future.



> But who knows, maybe I am just being cynical and everyone will buy less house and use the great rates to accelerate their paydowns. Yes, I'm sure that is how it will work.


Well constructed bit of cynicism!  Misled consumers will overspend on houses they really can't afford because the fat bankers *will make the initial purchase affordable*..ie" have we got a deal for you that you can't refuse"..

On top of all that, easy access to lower mortgage interest rates creates a feeding frenzy on the real estate market
driving up prices even more in major centers like Vancouver and Toronto where most housing is now approaching
$1 million! Try and finance a house at $699K or $800K and make those monthly payments (requiring both partners
to work at well paying jobs!)

$600K borrowed at 3.00% for 25years (assuming 4 yr term) is $2839.47
$600K with interest raised to 4.00% = $3,156.13
$600K with interest raised to 5.00% = $3,418.03 

Now how much does the partners buying the house have to earn at their income tax rate to have $3,156 a month
to make the mortgage payment..on top of everything else?

Then further along, as the economy worsens, and one or both borrowers lose their job, those payments will be harder to maintain on a monthly basis and some may fall behind...others will be squeezed so tightly that they
will be visiting food banks..which are also being squeezed tightly these days.

Canadian Banks should stop this nonsense. They rip off consumers on credit card interest already..now they want to try the "Freddie Mac" and "Fannie Mae" route of picking up real estate from devastated middle class families when they raise
their prime rates again. 

<the US housing model>
On July 11, 2008, the New York Times reported that U.S. government officials were considering a plan for the U.S. government to take over Fannie Mae and/or Freddie Mac should their financial situations worsen due to the U.S. housing crisis.

Fannie Mae and smaller Freddie Mac own or guarantee a massive proportion of all home loans in the United States and so were especially hard hit by the slump. The government officials also stated that the government had also considered calling for explicit government guarantee through legislation of $5 trillion on debt owned or guaranteed by the two companies. <end of extraction>

Now it probably won't happen here, as it did in the US recession with the banking collapse and sub-prime mortgages...but...who knows what the future has in store.


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## marina628 (Dec 14, 2010)

I can't speak for everyone but many of my family and friends are paying as much as they can on our mortgages as these low rates are making it possible to knock 10-15 years off amortizations with paying few hundred extra a month.


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## uptoolate (Oct 9, 2011)

Good for you and yours Marina. I just don't think that the masses are that smart. 

I agree with you Carverman - I was trying to be ironic/sarcastic - apparently with limited success! Human nature = human stupidity.


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## crazyjackcsa (Aug 8, 2010)

Most people don't work that way. At best they'll take the lower rate on houses they already own and lower the monthly payments.

It is human nature though. Thousands of years of scraping by have wired us to only worry about today. Next year doesn't matter when you're hungry/freezing right now. Sure, we aren't hungry or freezing anymore (you know what I mean, I know there are people that are) but that doesn't mean the feeling changes. "I need it right now, I'll worry about tomorrow when it comes."

Add that to a complete lack of understanding when it comes to basic math. I'm sure if you sat somebody down with a mortgage calculator like you can find online and show them the effects of prepayments or shortened amortizations you'd see a lot more families finding a couple of hundred dollars a month.


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## sags (May 15, 2010)

Heck, if interest rates go up..its only a few hundred coffees a month more....


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## carverman (Nov 8, 2010)

crazyjackcsa said:


> Most people don't work that way. At best they'll take the lower rate on houses they already own and lower the monthly payments.


You mean refinancing when they are paying close to 5% on existing locked
in mortgages?..The current bank will charge them a pretty penny as
a penalty for changing..and if you go running to another bank, there
are legal costs of discharging an existing mortgage and opening a new
one. Howeve, these costs may not discourage consumers from switching..
the banks are there to make an OBSCENE profit where they pay very little
income tax back to the gov't and its' simply business to them..do you
ever see a bank advertise."we care for you and your family in hard times!"



> Next year doesn't matter when you're hungry/freezing right now. Sure, we aren't hungry or freezing anymore (you know what I mean, I know there are people that are) but that doesn't mean the feeling changes. "I need it right now, I'll worry about tomorrow when it comes."


That's why we are labelled as CONSUMERS...we consume everything offered
to us..like chickens fattened up for the bank/financing companies..eventual
slaughter. It's the immediate gratification that's important..not what could
happend a year or two down the road of life. 



> Add that to a complete lack of understanding when it comes to basic math. I'm sure if you sat somebody down with a mortgage calculator like you can find online and show them the effects of prepayments or shortened amortizations you'd see a lot more families finding a couple of hundred dollars a month.


Even if they managed to save a "couple hundred a month" by refinancing..
would they "salt" that away in a TFSA?...
...no!... "Gee Honey ..with the 6 months to
pay offer on the store card..we'll buy the that big screen TV we always wanted.
or maybe we should just pamper ourselfves with the money "saved: and go
on that cruise... or better still a Carribbean vacation second honeymoon"


*Stompin' Tom Connors had a song about that on the old CBC Marketplace
show many years ago...*

The consumer, they call us, we're the people that just buy
While everyone else is out to sell, some kind of merchandise
We run to the boss and tell him, we need a bit more gold!
Some tax deductions later, and we still wind up in the hole.
Chorus:
Oh, yes we are the people running in the (rat) race,
Buying up the bargains in the old marketplace,
Another sale on something, we'll buy it while it's hot!
And save a lot of money.... spending money we don't got!


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## carverman (Nov 8, 2010)

sags said:


> Heck, if interest rates go up..its only a few hundred coffees a month more....


I wouldn't want to be driving on the roads with lots of drivers deprived of Timmy's morning fix! 
Morning commute could get a lot uglier than it is already!


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## m3s (Apr 3, 2010)

This just means people will pay huge penalties to BMO to break their terms to get the lower rate, as then take out HELOCs on the appreciation on the house so they can mimic the latest HG TV fad


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## ddkay (Nov 20, 2010)

Houses are the new bonds


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## carverman (Nov 8, 2010)

mode3sour said:


> This just means people will pay huge penalties to BMO to break their terms to get the lower rate, as then take out HELOCs on the appreciation on the house so they can mimic the latest HG TV fad


Yes, I'm sure they won't be socking away the savings on the mortgage payments with the reduced mortgage interest
rate..but then..according to the "Love it or List it" series on the W network..*any renovation expense on a 700K house in Toronto will drive up it's value by the same amount as the renovation or even more.* 

So if they put in $80K for the new kitchen.bathroom and fix up the basement, and they live in it a year (or more) and list that $700K house + $80K renovation for $849.. They can sell it after living in it for a year for "free" .
and realize some equity from it..and then go buy their next house at $999K!

The next couple buying it at $829 will live in it for a year, spend $20K on new hardwood flooring and sell it for $929K...meanwhile BMO is making big money off them.(even at 2.99%)..laughing all the way to the bank..
oh wait..they are the bank!


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## carverman (Nov 8, 2010)

ddkay said:


> Houses are the new bonds


'splain


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## ddkay (Nov 20, 2010)

It means bond vigilante's are coming after us soon because of a lot of bullsh*t activity in the economy.


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## Causalien (Apr 4, 2009)

I wish the bond vigilantes comes sooner. As a home owner with paid off mortgage. The HELOC is looking tastier by the second with the dropping interest rate. Even though I know it'll eventually rise and trap everyone who borrowed. I have dreams about all the neat things I can do with the borrowed money.


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## carverman (Nov 8, 2010)

Causalien said:


> I wish the bond vigilantes comes sooner. As a home owner with paid off mortgage. The HELOC is looking tastier by the second with the dropping interest rate. Even though I know it'll eventually rise and trap everyone who borrowed. I have dreams about all the neat things I can do with the borrowed money.


It's like winning your own personal lottery..and you don't have to worry
about the astronomical odds of winning...

<extraction>
A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to *borrow sums that total no more than the credit limit, similar to a credit card.* 

HELOC funds can be borrowed during the "draw period" (typically 5 to 25 years). Repayment is of the amount drawn plus interest. A HELOC may have a minimum monthly payment requirement (often "interest only"). The full principal amount is due at the end of the draw period, either as a lump-sum balloon payment or according to a loan amortization schedule. <end>

So besides the "wouldn't it be nice CHIPS (reverse mortgage) scheme were you can get a "fixed amount"..typically up to 40% of the value of your MORTGAGE FREE [email protected] 8.x% compound interest per annum..

Now the banks are getting into the act by offering HELOCs.

In the end..some of us could end up just like the Americans..living in our own places after paying the mortgage in 25 years..but not really having any thing to show for it...

...and in one case (CHIPS)..we leave the home valued at much higher resale value than the CHIPS lump sum offered at the beginning of the reverse mortgage period...but at least there in exchange for the property.
However, we can stay as long a we choose in our own homes, because the "loan" does not become payable until we choose to move or sell.....or die.

The Banks OTOH, with their HELOCs will suck up all the remaining personal equity earned over a lifetime of work and paying taxes..like a spider sucking out the life juices out of it's captured prey..and then kick us out as they foreclose on those that can't pay the minimum monthly interest payment. 

is this a good analogy?


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## carverman (Nov 8, 2010)

Causalien said:


> I wish the bond vigilantes comes sooner. As a home owner with paid off mortgage. The HELOC is looking tastier by the second with the dropping interest rate. Even though I know it'll eventually rise and trap everyone who borrowed. *I have dreams about all the neat things I can do with the borrowed money.[*/QUOTE]
> 
> let me offer some suggestions?
> 
> ...


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## Causalien (Apr 4, 2009)

I was thinking of lending the money back to the banks at a higher interest. I mean, spending it is cool and evil in the "I got money to throw away as waste" way. But doing what I just said is nasty.


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## carverman (Nov 8, 2010)

Causalien said:


> I was thinking of lending the money back to the banks at a higher interest. I mean, spending it is cool and evil in the "I got money to throw away as waste" way. But doing what I just said is nasty.


Ya, I would dearly love to lend them some money at the higher interest rate, but they are the legal crooks, just like the lawyers ....and they got the law on their side, so all I got for lending them my money is a lousy 2% or less
per annum..sometimes less like 1.5. Your money is basically "rotting" in bank savings accts, but at least
the CDIC will ensure you don't lose any of what you deposited.......so you can see why they can
offer 2.99% as a carrot to get people to commit to being locked in on their mortages...they pay diddly squat for any money you deposit... and charge you more for taking the SAME money out..if you have a regular
unsecured LOC...never mind the 8% they charge for consumer loans.

Whike not quite as bad as the myriads of "money stores" out there..they are only slightly better than the loan sharks..they won't come around to break your knee caps with a baseball bat..but they will foreclose and "steal"
your property from you...AND THEY DON'T PAY ANY INCOME TAX on the money they earn either...
the CEO gets a million dollary salary and they pay the bank tellers..diddly squat and part time at that...
..basically .a legalized usuary of sorts.


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## carverman (Nov 8, 2010)

According to CBC news today..the BOC realizing that the economy is going down the toilet this year, lowered the prime lending rate to 1.0%.
So BMO and the other chartered banks had a "heads up" before the announcement and BMO jumped the gun to offer "mortgage consumers"...a "generous break"..but they are NOT losing any money in the process!


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## jamesbe (May 8, 2010)

Correction they didn't lower to 1% but kept it at the current 1% rate. I had to double check that as I wasn't 100% certain. You had me hoping my mortgage rate was dropping again LOL


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## carverman (Nov 8, 2010)

jamesbe said:


> Correction they didn't lower to 1% but kept it at the current 1% rate. I had to double check that as I wasn't 100% certain. You had me hoping my mortgage rate was dropping again LOL


Sorry about that...they should have dropped it to 0.1%.


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## Causalien (Apr 4, 2009)

Borrow from CDN banks and lend to US banks as a carry trade and indirect way to short CDN bank while long US banks through loans.

So, prime rate at 3+1% worst case scenario and I have 4% while lending to the US banks at 7% through preferred while suffering a 1% exchange rate at worst and I should be able to earn 2% with the bank's own money.

Anything I am missing and should watch out for except heding through forex futures?


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## Jungle (Feb 17, 2010)

BMO just dropped a BOMB and has brought back the 2.99% !!!
http://business.financialpost.com/2012/03/07/mortgage-wars-round-2-bmo-slashes-rate/


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## KaeJS (Sep 28, 2010)

That's old news.


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## Jungle (Feb 17, 2010)

Insider's info. 

But I am happy for the news, I have a pre approval and rental mortage renewal I might be able to lock into if Scotia matches..

Last time all the big 5 did, it took a couple days to match.


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## RoR (Jan 18, 2012)

Whoa! Thank you for posting! I'm shocked they brought it back. Shocked and happy. I will be calling them tomorrow.


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## RoR (Jan 18, 2012)

Yes, good call. That's how I got my current rate of 5 year/3.89 was getting my mortgage company to match a rate. They wanted to renew me at 5.something. The horror!


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## KaeJS (Sep 28, 2010)

Should go for the 10 year at 3.99.


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## Jungle (Feb 17, 2010)

Don't want to have a mortgage in 10 years


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## KaeJS (Sep 28, 2010)

Touché!


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## HaroldCrump (Jun 10, 2009)

Causalien said:


> Borrow from CDN banks and lend to US banks as a carry trade and indirect way to short CDN bank while long US banks through loans.
> 
> So, prime rate at 3+1% worst case scenario and I have 4% while lending to the US banks at 7% through preferred while suffering a 1% exchange rate at worst and I should be able to earn 2% with the bank's own money.
> 
> Anything I am missing and should watch out for except heding through forex futures?


What about taxes?
Also, your biggest risk will be rising cost of capital (i.e. Canadian rates) while your returns (i.e. the US bank pref. yield) stays the same.
The 2% margin will get squeezed fast.


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