BMO may be positioning itself at the forefront of any movement to do away with the 30-year amortization, presenting a limited-time offer on the industry’s lowest five-year fixed rate – but one specifically capped at 25 years.
That rate of 2.99 per cent is meant to lure borrowers prepared to sign on the dotted line before Jan. 26. In doing so they agree to limit prepayment privileges to 10 per cent each year, but also to forgo any plans they may have had to go for CMHC’s highest amortization period, 30 years.
The BMO offer is specifically capped at a 25-year amortization, with the lender again pointing to its goal of encouraging financial prudence in consumers, now struggling with the highest debt levels in Canadian history.
“It’s not a move driven by competition, we believe a 25-year amortization is a better choice for more Canadians at this time,” Katie Archdekin, BMO’s head of mortgage products, told reporters this week. “We are trying to invite customers to make better financial decisions by offering this great rate. We think it’s a terrific product for the current environment.”
Brokers are concerned the ground is shifting out from under them in terms of the 30-year amortization cap. The fear is that the government may be encouraging banks to make the move to lower that ceiling to 25 ahead, or in lieu, of a formal mortgage rule change like those introduced last spring.
While the government lowered the 35-year cap to 30 in March 2011, bank economists are suggesting the government may be forced to consider again lowering it in order to curb consumer debt growth.
Brokers are less resigned to that kind of change, arguing consumer credit cards and lines of credit represent a bigger challenge to the Canadian economy. They maintain that the 30-year has the power to strengthen financial fitness.
“I would say that most clients opting for a 30-year are well able to qualify for a 25-year one,” said Peter Puzzo, a mortgage agent with Assured Mortgage in Woodbridge, Ont. “So the government removing that option would really only reduce their cash flow and force them to put money into a mortgage instead of investing in other areas. I’m not sure that would send a good message to consumers.”
The analysis comes on the heels of a panel discussion with economists from the Big Five, with several suggesting the government is most likely to drop the maximum amortization to 25 years if, in fact, rising household debt spurs another round of mortgage rule changes.
“If we see the housing market surprise on the upside and debt growth surprise on the upside, then the government will likely take action to further tighten mortgage insurance rules,” TD Bank economist Craig Alexander said. “Quite frankly, if you can’t afford a mortgage at 25 years versus 30, then you probably shouldn’t be buying a house in the first place.”