BMO is going to increase existing HELOCs by 1%??

[Bertuzzied]

My friend who has had a BMO Heloc for 5-6 years now received a letter saying that his current rate at prime is going to prime +1%!!!

Can they do that? isn't it grandfathered in for existing clients? I would be super pissed! I know all the new Helocs are at that prime +1% rate. Whats stopping them from raising it again later?

My 2 helocs are with scotia and i have not received or heard any notification yet.

[photon]

They better not be, if I lose my prime -0.5% I'll be very upset. Bye bye BMO.

[Bertuzzied]

Originally Posted by photon

They better not be, if I lose my prime -0.5% I'll be very upset. Bye bye BMO.

Well the only way they can get away with this is if ALL the other banks follow. That is so flipping stupid! I hope the Central bank of Canada stops lending them money.

[Bertuzzied]

Originally Posted by fotze

I thought Manulife already did this.

Really? and there was no backlash or outrage?

[JimmytheT]

First of all, they are more than allowed to do it. Almost all personal loans (as well as business loans) are ON Demand. Meaning that these loans can be called in at any time for any reason. Most banks would only call a loan for a good reason such as arrears, or fraudulent activity, as calling good loans makes little business sense.

If you had a Residential Mortgage loan, that was locked into a term (either variable or fixed), this rate change could not be done until the term expires. However with Lines of Credit, this demand feature also allows rate changes at any time. So yes, they are more than allowed to do this.

If you have a Prime - 0.5% rate, that will likely change, because with the current prime lending rate where it is banks actually lose money on loans at this rate. So to the guy that said, "Bye bye BMO", I highly doubt you will find a rate less than Prime + 1% anywhere else with the marketplace the way it is currently.

By the way, I do not work for BMO, but I do work in the industry.

[Bertuzzied]

Originally Posted by JimmytheT

First of all, they are more than allowed to do it. Almost all personal loans (as well as business loans) are ON Demand. Meaning that these loans can be called in at any time for any reason. Most banks would only call a loan for a good reason such as arrears, or fraudulent activity, as calling good loans makes little business sense.

If you had a Residential Mortgage loan, that was locked into a term (either variable or fixed), this could not be done until the term expires. With Lines of Credit, this demand feature also allows rate changes at any time. So yes, they are more than allowed to do this.

If you have a Prime - 0.5% rate, that will likely change, because with the current prime lending rate where it is banks actually lose money on loans at this rate. So to the guy that said, "Bye bye BMO", I highly doubt you will find a rate less than Prime + 1% anywhere else with the marketplace the way it is currently.

By the way, I do not work for BMO, but I do work in the industry.

I know they can do it but isnt' it rather unethical? So have you heard of any other banks following suit? thanx for the info.

[JimmytheT]

Originally Posted by Bertuzzied

I know they can do it but isnt' it rather unethical? So have you heard of any other banks following suit? thanx for the info.

Its not unethical per se, just unprecedented. Banks have not faced a situation like this in living memory.

This is happening industry wide. It has everything to do with profitability. RIght now a loan at prime is not profitable, because banks are giving premiums to long term deposits (such as 4 or 5 year GICs), to keep a good level of liquidity.

On top of that, the Prime rate is 3.00% which really tightens the spread between non-interest earning deposit accounts such as chequing accounts. For example, if you have a line of credit at prime and the bank's treasury department allocates a certain number of chequing account deposits for that line of credit limit, the gross spread last year would at a Prime base would be 6.25%; this year that spead is lowered to 3.00%; keep in mind this simple spread, does not include any potential cost to those funds i.e. borrowing to keep overnight reserves afloat, nor does it account for the overhead costs of salaries/wages, utilities, mainteneance etc.

In all, borrowing at Prime is actually a more recent thing (i.e. within the last 3 decades). In the past you had to be one hell of a customer (in terms of total connected dollars amounts) to even get close to a loan at prime.

Right now lenders cannot even give Prime with 100% cash security on new loans due to the unprofitability of doing so.

[Prototype]

Originally Posted by JimmytheT

If you have a Prime - 0.5% rate, that will likely change, because with the current prime lending rate where it is banks actually lose money on loans at this rate. So to the guy that said, "Bye bye BMO", I highly doubt you will find a rate less than Prime + 1% anywhere else with the marketplace the way it is currently.

I know a place where you can get less than Prime + 1%... for now...

[photon]

Originally Posted by JimmytheT

If you have a Prime - 0.5% rate, that will likely change, because with the current prime lending rate where it is banks actually lose money on loans at this rate. So to the guy that said, "Bye bye BMO", I highly doubt you will find a rate less than Prime + 1% anywhere else with the marketplace the way it is currently.

By the way, I do not work for BMO, but I do work in the industry.

"The guy" has a name

I realize all of what you said, on the other hand it must be nice for the banks to be in an industry where if you all of a sudden become unprofitable you can unilaterally reset the prices across the industry to keep profits up.

Unless the banks think this is going to go on for an extended period, wouldn't the negativity generated be far worse than reduced profits for a while until things recover?

Though I guess that's not even really a worry for them, because for everyone like me that leaves BMO for doing the increase even though they know they can't get a better deal elsewhere (leaving just to send a message basically), someone else moves to BMO.

I'd probably move to a short term mortgage for 6 months or a year until the longer term mortgages come back down from prime+, then lock in longer term.

Knowing the reasons for their actions still doesn't make it any less frustrating from a consumer's point of view.

[photon]

Originally Posted by fotze

Oh no , I'm sure they are shaking in their boots, they all do it and you go to the competitor the guy the competitor pissed off goes to BMO.

Still better than standing there saying "thank you sir may I please have some more?"

[onetwo_threefour]

Actually, there may be a bit of a special case with BMO. It seems to me that when registering BMO HELOCs there is a unique little bit of language that BMO uses to define the Prime rate as something other than the norm. They define their HELOC prime rate separate from the bank's prime rate. My guess is that they are using that to adjust the HELOC rate independent of the prime rate. To my knowledge, t hey are the only bank that has language in their agreement allowing them to do so.

While the earlier poster (whatever his name is ) is correct in saying that these loans are made 'on demand', the fact is that most banks wouldn't want to risk the business by actually calling the loan and then offering a new one at a higher rate. BMO's version allows them to avoid such unpleasantness by simply changing the HEOC Prime rate.

I can't speak to Manulife's version as I only did a couple of dozen of those and haven't seen any since last summer. I don't recall there being unusual language in the Manulife One documents, but I coul be mistaken.

[Slava]

Originally Posted by fotze

I thought Manulife already did this.

As one of the resident Manulife guys I feel like I should respond. Manulife did not increase the Manulife One rate, they didn't match the cuts all the way down...that is what the issue was on the RFD thread as well.

You can still get a Manulife One account for what amounts to prime +.75 currently.

[Bill Bumface]

I'm so pleased to see banks doing everything in their power to allow for more borrowing in this time of recession

The fact interest rates are dropping but what you pay on mortgages and LOCs is absolute garbage and I would love it if the Bank of Canada stepped in.

[ShotDownInFlames12]

Originally Posted by Bertuzzied

My 2 helocs are with scotia and i have not received or heard any notification yet.

They are going to prime + 1%

[csnarpy]

i called TD about this possibility and was explained that since I had signed a contract with a prime rate that my HELOC will stand as is.

Thanks TD

[Wookie]

CIBC will be following too I heard.

[Dan02]

Originally Posted by Wookie

CIBC will be following too I heard.

Booo

[ShotDownInFlames12]

Originally Posted by ShotDownInFlames12

They are going to prime + 1%

My bad.

All secured Scotialine and Scotialine Visas and Scotialines and Scotialine Visa's under a STEP will not change.

[FireInTheHole]

Originally Posted by Wookie

CIBC will be following too I heard.

I just got a notice with my CIBC LOC statement saying rates would increase by 1% in April. What a crock! So when rates go back up are they going to give the 1% back???

[Bertuzzied]

Originally Posted by FireInTheHole

I just got a notice with my CIBC LOC statement saying rates would increase by 1% in April. What a crock! So when rates go back up are they going to give the 1% back???

Is it a secured or unsecured LOC?