The Day the Rate War Started…
It all started last week when BMO announced its fantastic variable rate of Prime -1% = 2.45%
Until then, we had this type of rate offered by trust companies and credit unions only to insured mortgages with a down payment of less than 20% of property’s value.
Clients that wanted to buy with 20% or more own funds, or to refinance their house at 80% or less did not have access to rates better than Prime -0.6%.
BMO managed to surprise us all by stating that the 2.45% rate is offered to everyone.
Two Days Later – A New Rate Introduced
TD joined the celebration and announced a promo of TD’s Prime -1.15% for all type of mortgages insured 85%-95% financing, and non-insured or regular mortgages.
To the inexperienced eye, this looks like a much better rate than BMO’s. This is why a mortgage broker is helpful in deciphering rates. Looking closely at the details reveals: first, that it’s exactly the same! TD is the only bank who prices their Prime higher than others by 0.15%. A quick calculation shows that since TD’s prime is 3.6%, a Prime-1.15 will result in 2.45%, which is the same rate offered by BMO.
Looking at the Fine Print of the Special Rate Offer
Part of the contract with TD allows the bank to recall your mortgage at any given time. Since TD keeps the monthly payment at the same level, no matter how much the Prime goes up or the rate increases, they include a clause in their contract that allows them to ask clients to payout their mortgage in full under certain circumstances.
Because of the deep discount and the reliance on Prime, there might be a point where the rate is too high. This means that your entire payment will be composed of interest, with no principal component. This situation requires an extension of the length of time to pay the full mortgage amount. It’s called a negative amortization. This rare situation can become extremely unpleasant; therefore, TD saves the right to a recall of the mortgage to avoid it.
Four Days Later – Same Rate Wherever You Go
Now almost all big banks are promoting the same variable rate of 2.45%. It is offered to everyone although this is not without some specifications. For instance, Scotia announced this deal as one that has limited time – a two-week term and only for purchases and refinances of primary residence. This means they exclude rentals and investment properties.
Who Can Benefit from This Rate?
When there is a good variety of lenders offering an amazing product, we have the advantage of a good selection to choose from.
Clients who are in a process of purchasing a house and are approved now are the first to benefit. Pre-approvals cannot be done under this new promotion, only current deals. Still, the main group to celebrate are those who already have a mortgage and are planning to refinance and pull some equity out. For these clients, it’s a wonderful opportunity to secure an amazing variable rate.
Part of our process is to constantly run your personal mortgage calculations. This is to check if now it is worthwhile for you to pay a small penalty – if you have a variable rate mortgage – and move to a new variable rate mortgage of Prime -1%. Don’t be surprised if in the next few days you’ll get a phone call from us. However, we will only be reaching out to client if it makes sense and results in significant savings. Stay tuned!