Today, BMO Bank of Montreal re-introduced the special offer it first ran in January 2012: a 5-year closed term for 2.99%. “Special” is the perfect word to describe this product - similar to how your friends might comment on your new, unflattering hairstyle as “interesting”. I called BMO to get the fine print as my own mortgage is up in April, and none of the lenders that I represent have yet to adjust their rates in response to the BMO announcement this morning. The lowest 5-year fixed rate that I can currently get is 3.09%, and I am not endorsing that particular product due to the restrictive terms. The next best rate - with semi-decent terms, is 3.19%. That’s another “special” offer, with some funky fine print. The lowest rate as of this morning for a “full-service”, flexible 5-year term is 3.29%.

I have several issues with the BMO offer, but the most distressing point is that the mortgage is closed for the 5-year term. Period. You cannot break the mortgage mid-term unless you have an arms’ length sale (a sale to a non-relative).

You are not able to refinance mid-term. I was under the impression when the offer was first announced in January that you could refinance mid-term, but you had to stay with BMO - i.e. You could not pay a penalty to BMO to get another replacement mortgage elsewhere. Today, I was told by the BMO Call Centre representative that I would not even be able to refinance this “special” mortgage mid-term with BMO.

In a perfect world, where one could anticipate all the life events that are going to occur in the next 5 years, this mortgage may be a good solution. But, let’s consider some events that could occur, thus causing a homeowner to want, or need, to break a mortgage mid-term:

- job loss, and subsequent loss of earnings. What if you lose your job, then find another job, but the pay is less? You want to re-write your mortgage to increase your amortization to higher than the contract sets out, so that you can maintain your payments. Many lenders still offer 30, 35, and 40 year amortizations. A longer amortization means a lower mortgage payment.

- marriage breakdown. You and your spouse are separating, and you’d like to refinance the mortgage to buy your spouse out, so that you can stay in the home. You want to increase your mortgage and perhaps increase your amortization, so that you can afford the payments on one income.

- wanting to take equity out of your home. You’ve renovated your home, and, with recent inflation, your home value has gone up substantially. You’d like to refinance to pay off your $12,000 Home Depot bill, at 18.99%.  Another example: You want to refinance to take some equity out to purchase a vacation home, or pay for your kid’s education.

- illness. You’ve made extra payments on the mortgage in the last couple years, and now you’d like to skip a payment, or access the funds that you prepaid, to carry you while you are dealing with your illness.

With the special, low-rate BMO 2.99% mortgage, you cannot make any changes during the 5-year term for reasons like I’ve illustrated above.

Unless you have access to a very good psychic, who can give you a rosy 5-year prediction for your employment, relationship, and health, stay away from this product.

The interest savings on a regular 3.29% rate versus this 2.99% deal is peanuts compared to the risk of being locked in to such a restrictive product for 5 years.

On Friday, BMO Bank of Montreal announced that it was offering a 5-year fixed-term mortgage for 2.99% for a limited time. Several lenders have followed suit, lowering their long-term fixed rates to compete with BMO. The BMO offer is a perfect example of the necessity of hiring an independent mortgage broker to arrange your next mortgage. After reading the terms and conditions of the BMO offer, I would not recommend this product to my clients, especially now that other lenders are also offering this rate, but with much more flexible terms.

One restriction of the BMO Bank of Montreal offer is that the amortization is limited to 25 years. Many borrowers want the flexibility of taking a longer amortization (as high as 40 years), but will then set the regular payment as if the amortization is 25 years. This is a great strategy as it gives you the freedom to adjust your payment if you run into financial difficulties in any given month, or experience a change in your cashflow. With the BMO offer, you are not given the freedom to re-write the mortgage to a higher amortization.

The second issue that I have with the BMO offer is that the prepayment privileges are limited to 10% annually. You can only prepay up to 10% of the original principal, and you are limited in increasing your regular payment to just 10% annually. When shopping for a mortgage, you should look for terms that offer large prepayment privileges. For example, Merix Financial allows borrowers to prepay up to 20% annually. Another lender, First National Financial, has three prepayment options: up to 15% lump-sum prepayment annually, plus you can increase your payment as much as 15%, and you can double-up your payments at any time throughout the year - with no limit.

Very few Canadians take advantage of a mortgage’s prepayment features, so this limitation in prepayment may not seem that big an issue. However, it becomes very important if you ever want to break your mortgage prior to its maturity date. Often, I will encourage a borrower to make a lump-sum prepayment on the mortgage prior to breaking the contract, in order to reduce the penalty. For example, if your penalty to break your mortgage is $10,000 but you are able to make annual prepayments on the loan, you can significantly reduce your penalty by using a 20 percent prepayment option.

Finally, the BMO mortgage cannot be paid off early unless there is a bona-fide, arms’ length sale of  the property. You cannot re-negotiate the mortgage mid-term, unless you take a replacement BMO mortgage. And, I guarantee you, that the branch will not be offering you such discounted rates on the new loan. You will most likely be charged the current posted rate, and you will have no option but to take that rate - as the mortgage is closed, period. You will be at the mercy of the branch. To give you an idea of the hit you will take, the current posted 5-year fixed rate is 5.29%.

That’s a pretty nice mousetrap that BMO has set up for homeowners.

I am disappointed with ING Direct. Today, the Company announced that, effective December 10th, 2011 it will be registering all of its new mortgages as 100 percent “collateral charges”. The Company currently does not prescribe to this type of registration as it does not really fit it with the “unmortgage” product that it has been marketing to Canadians for the past 3 years. A collateral charge makes it very easy to borrow more money later on, after you’ve worked really really hard to pay down your mortgage.

Does our beloved ING Direct spokesman, Frederic, know about this? Will he still be solemnly advising us to save our money? I don’t blame him if he runs back to his homeland, Belgium.

What actually does a “collateral charge” mean in plain English, to the consumer who does not work in mortgageland? There are two things you need to know about collateral charges:

A collateral charge means that you will no longer be able to transfer your mortgage to another institution at renewal without incurring fees to move. In really plain English, ING Direct, like TD Canada Trust, Scotiabank, National Bank, and RBC, is building a nice fence around you so that you can’t leave the Bank when your mortgage is up for renewal. The big difference here though is that TD Canada Trust, Scotiabank, and National Bank give you the choice of being able to register your mortgage as a standard mortgage or a collateral charge. You are not forced to have the mortgage registered as a collateral charge. Not so with ING Direct.

The second nasty feature of this ING Direct collateral charge is that it will be registered for 100 percent of your property value. So, if you purchase a home for $400,000 and you put 25% down on the purchase, for a mortgage of $300,000, the mortgage that gets registered against your property is for 400K - not 300K.  The Bank’s rationale for doing this is that it will save you legal fees down the road when/if you need additional funds. You’ll be able to borrow additional funds on an ING Direct secured line of credit!

ING Direct has never offered secured lines of credit to homeowners. This type of borrowing is so not in line with the Company’s “unmortgage” philosophy.  I’m guessing that ING Direct saw how much profit it was losing to the banks that do offer this type of borrowing, that it had no choice but to jump on that wagon.

I guess that I’ll have to take down the ING poster in my office now. You know, the one that states “The unmortgage. Find out how easy I really am.” I can’t wait to see what the new posters say. Run, Frederic, run.

Your MPAC (Municipal Property Assessment Corporation) assessed value is what determines your annual property taxes. If you feel that your home’s assessed value is higher than true market value, you can apply to have your property re-assessed.You can submit a “Request for Reconsideration” form to MPAC. The deadline to submit the Request for the 2011 tax year is March 31st, 2011.You can also review the value of properties in your area by way of free reports available through “AboutMyProperty” at www.mpac.ca. These reports may assist you in determining if your assessment is reasonable for your neighbourhood.

This blogpost deals with Borrowers who are planning to refinance an existing mortgage, or to purchase another home, who will require additional funds to proceed with the refinance or purchase. Effective March 18, 2011, the maximum amortization period available to borrowers when NEW MONEY is being added to an existing CMHC-insured mortgage will be limited 30 years.  This 30-year amortization limit only applies to insured mortgages - loans for greater than 80% of the property’s value. If you are refinancing or purchasing a home and your own equity stake is 20% or greater, then you are not limited to this 30-year maximum amortization. In the case of a straight portability or transfer/assignment of the mortgage loan from one Approved Lender to another where there is no increase in the outstanding balance, no increase in the remaining amortization, and no increase in the loan-to-value ratio, and no additional CMHC premium payable, the maximum 30-year amortization period does not apply.   

I have been receiving many questions from clients regarding the upcoming Department of Finance changes. If you are applying for a mortgage for a home purchase, and we have a preapproval in place prior to March 18th, I have received confirmation that CMHC will consider “grandfathering” approvals for amortizations greater than 30 years provided there is a valid signed agreement/Offer to Purchase in place prior to March 18, 2011.  For refinance applications, again, if the remaining amortization exceeds 30 years on submissions to CMHC, these applications will be considered for approval provided the covenant is very strong.  Each application is assessed on its own merits, so this information should be taken as general guidelines. 

This morning, Finance Minister Jim Flaherty has announced new mortgage regulations aimed at reducing Canadians’ soaring household debt.

Flaherty has unveiled three new rules:

(1) Mortgage amortization periods will be reduced to 30 years from 35 years.

(2) The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from 90 per cent.

(3) The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.

The new rules come on the heels of a Bank of Canada announcement that Canadians’ domestic debt burdens have hit record levels.

The change in amortization and refinance borrowing limits will go into effect on March 18, 2011 and the change in insurance on home equity lines of credit will go into effect on April 18, 2011.

The first change is likely to have the largest impact. Buyers who purchase a home with less than 20 per cent of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation.

Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.

While Flaherty called the changes “moderate,” they did not include an increase to the five per cent minimum down payment Ottawa requires for a home purchase. They also stopped short of a proposal that surfaced last week which would have required 100 per cent of condo fees to be included in the list of expenses that are measured against income when financial firms consuder a mortgage candidate. Currently, only 50 per cent must be included.

 The ratio of household debt to disposable income has reached 147 per cent and household debt has reached $1.4 trillion.

The International Monetary Fund has called household debt the No. 1 risk to the Canadian economy.

That is the distance Terry Fox ran in 143 days in his cross-Canada Marathon of Hope. I ran my first half-marathon on December 5th, 2010 in Las Vegas, NV. I thought of Terry often while running my race that day. The determination that this young man showed throughout his journey should be an inspiration to all of us in how we choose to live our own lives today. I am very thankful that I am able to support his Foundation today through my career.

As the holiday season approaches, and the year comes to a close, I always enjoy setting aside some time to reflect and recognize the achievements and milestones of the year, as well as plan for the coming year.  The year 2010 was an incredible year for me in so many ways, and I have you to thank for this. 

The discounts on variable rate mortgages continue to improve, as we are seeing 3-year variable rates today as low as prime minus 0.75%, and 5-year variable rates at prime minus 0.60%. We are still not at the historically best discounted variable rate product that was offered in early 2008, at prime minus 1.01%, but we are at least moving in the right direction, especially given this morning’s Bank of Canada quarter-point rate hike.For up-to-date rates and promotions, please call me directly.