Mortgage rate gets chopped

Thursday the Bank of Montreal slashed its five-year fixed mortgage rate by half a percentage point to 2.99 per cent.

Despite the cold temperatures, the local real estate market remains hot. With today’s BMO announcement, some fear this could lead to irresponsible borrowing. But Marvin Ryder from the DeGroote School of Business says that’s not the case: “I’m not really worried about this. I don’t think this is a new normal low. I think this is as we say a sale.”

A sale to drum up some business. Last year the bank did the same thing but then-finance minister Jim Flaherty stepped in.

Marvin said: “He specifically called out the Bank of Montreal and said ‘evil people — you’re doing these things that’s going to hurt the economy’, and we saw no ill effect.”

Ryder says that rates will go up both in the short and long term, but right now is when banks want to gain business.

Typically this is the time of year where more people are getting into the market. A low mortgage rate could attract a lot of buyers, but experts like Christopher Horrocks of the Personal Mortgage Group will say it’s buyer beware.

Chris Horrocks is with Personal Mortgage Group: “A mortgage is a lot more than just a number. When you’re signing 20 pages there’s a lot more to it than just a rate.”

Horrocks says that some of these low rate contracts contain clauses that restrict buyers in the future. One example is: “A lender limiting you to only that lender — if you want to say re-finance.”

Meaning, if you want to break the mortgage three years down the road you’re at the mercy of your current bank.

Chris says: “It’s those little details you know where you’re kind of putting yourself in a corner, just because you want to save five bucks a months on an interest rate, that’s kind of silly.”

Horrocks says that’s why it’s important to look at what is best for you for the right amount of time — not just a rate.