• BE CAREFUL OF WHAT YOU ARE GIVING UP FOR THAT GREAT RATE!

  • Recently BMO cut their 5 year rate to 2.99% – speculation was that it was due to Jim Flaherty’s recent departure. In these times, when interest rates seem to be the talk in real estate and in business in general, I thought it would be great to discuss what else you might be giving up for that supposed great rate!

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    Amortization is one aspect as to what your monthly payments will look like – for example 25 year vs. 30 year amortizations. With a 30 year amortization you pay more interest over the life of the loan but your monthly payments are less as you are stretching it out so to speak. BMO has capped their mortgage with a 25 year amortization, so your mortgage payments will be higher.

    Lump Sum Payments: with BMO’s regular mortgages you are allowed a 20% lump sum payment each year. With the 2.99% mortgage you are only allowed 10% maximum towards your lump sum payment.

    The term of the 2.99% mortgage is fully CLOSED for five years, unless you sell the property, refinance with BMO only or renew into another BMO mortgage.

    Furthermore, this mortgage does not come with “skip-a-payment” option or the “portable/assumable” option either. It is a basic no-frills mortgage.

    So when shopping for a mortgage, make sure you are looking at what options you require first and then the rate.

    For instance if you purchase a property intending to live in it for while but after a year figure out that you need to move and you took out a no-frills mortgage, such as this one, you could break it, however you would be facing high penalties to do so and furthermore, what if you had a buyer who wanted to assume the mortgage or you wanted to port the mortgage to your new home with this great rate? You would be hard pressed to do either of those things.

    When looking at any mortgage product always ask yourself the following:

    How long do I intend to live in this house? Is it a starter home or the home I intend to live in for the rest of my life or until I retire?
    Do I need the assumable or portable option?
    How much do I intend to put towards the lump sum payment each year?
    Do I want Variable or Fixed and Open or Closed?

    Answering these simple questions will first tell you if the mortgage product being offered is the right one for you and then you can consider rate. Doing this step backwards and only considering rate can come back to bite you in the end.

    To Your Wealth!
    Amina

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