Is BMO's mortgage-free for a year contest worth it?

Continued all-time historic low interest-rates are prompting mortgage lenders to get creative. To entice business, BMO recently launched a contest that offers anyone getting a mortgage a chance to win a year mortgage-free. But is it worth it?

BMO’s limited time offer for any new, refinanced or renewed mortgage application before Oct. 31, 2016, gives any borrower a chance to win a year of no mortgage payments—up to a limit of $28,000 in total annual mortgage payments.

What's the best mortgage for the first-time home buyer?

According to BMO rules, to qualify for a contest entry your mortgage application must be received before October 1, 2016 and the mortgage must be starting no later than January 17, 2017. Also, you must opt for a closed, fixed term of four or more years for a mortgage of $200,000 or more and at a rate of 2.59%.

When you add in fees and additional costs associated with the mortgage, the annual percentage rate is 2.61%. The APR represents the actual yearly cost to borrow the mortgage over the term of the loan.

However, if you’re really shopping for competitive rates the BMO rate may not cut it. A quick check on Ratespy shows that there are a number of mono-lenders that offer substantially lower rates.

For instance, if you were putting 20% or more down on a home, or had more than 20% equity in your home you could qualify for a five-year fixed of 1.97% through Butler Mortgage; if you have less than 20% in equity in the home you could get the same rate with intelliMortgage.

To understand the savings, here’s a breakdown, assuming a five-year fixed on a $300,000 mortgage with 20% down and a 25-year amortization.

Lender	Rate	Monthly mortgage payments	Balance at end of five years
BMO	2.59%	$1,357	$244,521
Bulter Mortgage /intelliMortgage	1.97%	$1,266	$240,794
If you won a year mortgage-free*			$225,594

(*Based on BMO terms, this translates into a savings of $16,288.58 in the first year)
Since the BMO prize is based on your mortgage payments only mortgage loans of more than $515,000 will qualify for the full prize limit of $28,000.

It’s interesting that BMO is launching a contest to attract homebuyers to lock-in to a new or refinanced mortgage before the Nov. 1, 2016 OSFI deadline that will force some banks and mortgage lenders to start paying more to take on mortgage loans—costs these lenders are sure to pass on to the homeowner.