Written by  Morteza (Morty) Sadeghi

It’s good to keep your head on straight in these tough economic times and listen to the people who know best. Now that may have been your Old World grandparents telling you that you should only buy what you’ve got money for, or the Governor of The Bank of Canada who is telling us we need to pull the reigns of our personal and household debt load back in.

It doesn’t really matter who you look to for this frugal financial advice, it’s best to read between the lines before you sign on the dotted line for one of BMOs No Frills 2.99% mortgages.

Here’s just a few of the reasons you should be cautious about this new product.

Right away there are too many limitations. Remember that the advantage you get when you use a mortgage broker are the best rates and terms through our ability to look through all the offers and conditions for you. Not all lending institutions have your best interests in mind.

First and foremost is the fact one of the bigger clauses that’s designed for the consumer has been taken way with BMOs latest offer—namely the ability to pay lump sums on the mortgage prior to maturity. With this product you can only make a 10% lump sum payment and that’s half of the 20% that more traditional mortgages allow for.

The maximum amortization rate has been lowered as well. This new BMO product only allows for 25 years amortization whereas the option for 30 years has been taken away. That means higher monthly payments plus there’s more than likely less mortgage available for new homebuyers looking to enter markets in places like Toronto or Vancouver where prices are highest. As well you cannot skip or double up on payments.

There’s more. You can’t refinance or go to another lender prior to the maturity date of five years. You can only break your mortgage via a bona fide sale. Statistics show that most Canadians don’t make it that far and refinance or sell after only three years. You’re locked in here and there’s no reason for the BMO to bargain with you for a new and better rate.

Remember the big banks in Canada have a penalty calculation for their mortgages. If you’re refinancing or paying off a mortgage with one of Canada’s big banks, you’ll be hit with astronomical penalties that can be avoided by using the right mortgage broker. Why get involved in a 10 month, 12, 14 OR to maturity interest penalty?

Lastly, with this new BMO  product, the usual 120 days hold is also gone.

Big bank or mortgage broker. It’s clear you shouldn’t be dazzled by BMOs low interest offers before you talk with us for the full picture.