My variable rate mortgage would always be 1% above the BoC overnight rate.
I've been more lucky than not with my variable rate mortgage and over the last year nearly delighted with each down tick in the Bank of Canada overnight rate as it was applied directly to my variable rate mortgage. So on Dec. 9 when the BoC cut the overnight rate by a whopping 3/4 of a percentage point I was self smug in knowing my mortgage rate would fall to 2.5%.
Until this morning, that is.
The "Mortgage Rate Change Update" that came from the Bank of Montreal (and later than usual following a BoC rate change) showed only a 1/2% decrease in my rate (to 2.75%).
Now you might say, "2.75% on a home mortgage, Wow! that's great!!"
But what I say is, "no way bubba, this is a NAKED CASH GRAB BY THE Bank of Montreal". They are pocketing that 1/4%. On a $100,000 mortgage that's over $225 / year that they are taking from their customers.
Why is this so? Well, variable rate mortgages are based on the BoC overnight rate. The bank adds 1% to cover its own costs and to make a little profit (Never forget that banks NEVER lend you their own money, it is always someone else's, in this case the government's).
So now they are borrowing at a very cheap rate but keeping a larger chunk for themselves and not passing it on to their customers. In the end we pay more, but it goes into the banks pocket, not back to the government.
If you have a variable rate mortgage with BMO, be sure to protest and spread the word.
