Bank of Montreal did the unthinkable to attract new mortgage customers by dropping their pants on the five-year fixed mortgage with an ultra low 2.99% interest rate. Something that was simple unheard of before. January, which is a traditionally sluggish month for mortgage sales has sparked other banks to follow suit. A few days later RBC and TD introduced their own ultra low interest rate mortgages. Last week TD lowered its four-year fixed-rate mortgage to 2.99 per cent, down from 4.79 per cent, and RBC dropped its four-year fixed rate mortgage to 2.99 per cent, and 3.99 per cent on a seven-year fixed-rate mortgage.
Think before signing on the dotted line. A good read of the fine print is a must. These mortgages have restrictions that don’t come with other products. These mortgages offer Canadians a way to be mortgage-free faster due to great rates and a shorter amortization.
However, these ultra low interest rate mortgages do differ from traditional mortgages in several ways.
- You are locked in for the term of five years. In other words you cannot refinance or switch your mortgage to another lender for five years. On average, most home owners switch their mortgages during the period of the last two years of their mortgage by either refinancing into a better rate or move onto a better rate.
- A typical mortgage offers an amortization period of up to 30 years. The maximum amortization period is 25 years on these ultra low interest rate mortgages.
- Unfortunately you cannot skip or double-up on a payment. Sad, I know.
- You can make as lump sum payment only once a year equal and increase your monthly payments. The catch is that it has to be 10% of the principal amount owed or less. Most traditional mortgages let you make monthly and lump sum pre payments of 20% or more.