Hats off to the Bank of Montreal for starting a practice that all financial institutions should have in place, and could even improve upon.
BMO has announced that prospective homebuyers who take out a five-year fixed-rate mortgage and existing homeowners who renew for a five-year fixed rate, by Oct. 31 of this year, will not have to pay basic banking service charges during that five-year period.
The bank says having its Performance Service Plan with unlimited transactions free of charge during the term will save a person more than $800, which could be worth an extra mortgage payment.
Service charges have always been a bone of contention. The simple question people ask is why should they have to pay to take out their own money, and the simple answer they receive is that there are expenses in paying staff and building the buildings to handle transactions.
It's been the picayune service fees that have been particularly irksome for people, like being billed for each cheque written or each withdrawal.
Particularly when a person takes out a mortgage and pays interest - a meagre $100,000 mortgage at six per cent costs $91,900 in interest over 25 years or $127,400 over 35 years - it seems galling for that person to be charged $10.50 a month for a full-service package on a bank account.
The Bank of Montreal's announcement to waive service charges for five-year mortgage owners also brings another issue into play, that of fixed-rate mortgages.
Most Canadian mortgages offer rates close to the prime interest rate, but U.S. lenders also offer teaser rates - one or two per cent for the first couple of years - and subprime rates.
In addition, while only 22 per cent of subprime borrowers in Canada have variable mortgage rates, according to CIBC World Markets economist Benjamin Tal, the figure is double in the U.S.
In fact, it is now estimated that 40 per cent of Americans who had adjustable rate mortgages as they are called in the U.S., in recent years will have their homes foreclosed upon.
Thus the new Bank of Montreal deal works for it on a number of fronts. It offers some appeasement to clients and politicians on service charges, it stabilizes the length of mortgage loans and, therefore, bank revenue projections, and it may protect some homebuyers from losing their homes due to shocking increases in variable-mortgage payments due to rising rates.
Basic service charges could be waived for anyone holding a mortgage with the bank, and even more charges could be waived for people renewing, which would reduce the amount of shopping around for mortgages that goes on.
Perhaps in the spirit of negotiation, you could barter which fees get excused. The $30 charge for ordering another 200 cheques comes to mind.