Investor’s Group has launched a 1.99% three year variable mortgage rate special. This is the lowest rate in Canada, in fact it is 35 basis points below the next closest rate offer from any Canadian bank or lender.
Many are asking how Investors Group can offer a rate significantly lower than all their competitors. There are no economics to justify pricing this low but IG has confirmed that it is a self-funded product. IG claims to have a big block of funds that it needed to lend out at this rate, and wanted to make a big splash in the mortgage market. Funds could last for three weeks or three months depending on lending volume. Many experts believe IG is taking a loss on these funds to take advantage of upselling to these new clients.
The mortgage is a no-frills product. This means it is fully closed, not portable, and you must sell the property to break the mortgage. These restrictions are similar to what BMO offers on their low rate 5 year fixed product and are rarely a good choice for consumers. Having a low rate is one thing, but being forced to sell your home in the event of a life changing experience is far too restrictive for home owners.
Sure, this rate looks great today, but what happens when rates start going up? If you decide to lock into a fixed rate, they are going to lock you into IG’s posted rates, which are going to be significantly higher than best rates. If you decide to change lenders to find the best rate, you will need to pay legal and registration fees again.
- Prepayment Options: 15% lump-sum annually, 15% annual payment increase and double-up payments
- Lock-in Option: Lock into a fixed rate at any time but only at posted rates
- Refinances: Not allowed
- Early Renewals: Not allowed
- Early breakage: Not allowed unless due to a bona fide sale of the property
- Registration: Collateral charge which means you will have to pay legal fees to switch to a new lender upon maturity.
On the outside looking in this is a fantastic rate and unprecedented dropping below the 2% threshold but to make certain this product is right for you, talk to a mortgage broker and consider the restrictions and how these may affect you today and down the road. Rate is not everything when shopping for the best mortgage for you, always consider all the product features being offered and don’t overlook the fine print!