BMO’s New Digital Mortgage Pre-Approval: A Review

Banks know that the future of mortgages is online. COVID has only accelerated that trend.

In the last few years, we’ve seen big banks roll out all kinds of online mortgage gizmos. They tout instant mortgage decisions, easy online applications, secure document uploading and so on. But, to date, I've seen very little that’s truly extraordinary in terms of improved function or savings from a major bank’s mortgage website.

Now, along comes BMO. It recently launched its new “Digital Pre-Approved Mortgage.” Is it breakthrough? Well, not exactly. But is it an improvement on BMO’s current pre-approval options? Yes.

Let’s dig deeper.

What is BMO’s Digital Pre-Approved Mortgage?

The bank’s Digital Pre-Approved Mortgage (we’ll call it BDPAM so we don’t have to type as much) lets you get pre-approved online in minutes. It then locks in your rate for 130 days.

Assuming you qualify, you’ll get pre-approved instantly after submitting the application. That provides quick peace of mind that your rate is guaranteed, letting you home shop with confidence.

After the pre-approval, a BMO mortgage specialist contacts you to assist with the full approval, once a property is selected. The mortgage specialist verifies your documents, arranges the appraisal and is available for questions until the mortgage closes.

Dot Tip: If you apply for a pre-approval online, regardless of the lender, remember that pre-approvals are based mainly on the initial information you provide. If you cannot support the information you provide, the bank may reverse your approval later.

What We Like

BMO's Digital Pre-Approved Mortgage has things going for it:

• A great 130-day rate hold
  • That’s the longest rate hold of any major lender with half-decent rates.
• BMO has added more rate transparency
  • BDPAM's rates have bigger discounts than BMO's “special offer” website rates, and you don’t need a credit check (like TD) or login (like Scotiabank) to see them.
  • Kudos to BMO for that. When mortgage shopping, there’s little worse than having to waste time or get a credit check before seeing what the lender has to offer.
• Speed
  • Digital pre-approvals are “instant,” says BMO.
  • Note: I didn’t test this because I didn’t want a hit on my credit score, so I'll have to take the bank's word for it.
• The Mortgage Cash Account
  • This feature is available with the BDPAM if you choose a regular BMO mortgage (not the “Smart” fixed rates).
  • BMO’s Mortgage Cash Account lets you make prepayments and then reborrow that money, if needed, at the same rate as your mortgage.
  • We've always considered it one of the best mortgage features out there. The reason: It lets you make prepayments with the confidence of knowing you can easily borrow the money back, at your current low interest rate, in an emergency. Only BMO has this feature, to our knowledge.
• BMO offers a convenient and secure document upload link.

What We’re Not in Love With

• The rates are okay (at best), depending on the term you pick
  • We’ll give credit where credit is due, however. BDPAM rates are materially lower than BMO’s regular rates--not that the bank had a choice. You can only be "out-of-the-market" so much with a web-based offering, given so many people now see lower rates on websites like this.
  • On the most popular term, the 5-year fixed, BDPAM’s “Smart” rate is currently:
    • 1.83%, or 10 basis points (0.10%-pts) lower than BMO’s website rates for insured mortgages
      • Compare that to the lowest nationally available insured pre-approval rate of 1.39%
    • 1.83%, or 26 basis points (0.26%-pts) lower for uninsured mortgages
      • Compare that to the lowest nationally available uninsured pre-approval rate of 1.64%

BMO’s Website Rates

Sample BDPAM Rates

• There's no variable-rate option (huh??)
• It still relies on a conversation with a person
  • BMO tells us, “Our customer research shows that many customers still prefer to interact with specialists to obtain financial advice for large financial transactions such as mortgages and investments.” And it’s right, of course.
  • But, there are now lenders who don’t require you to speak to a person to get a mortgage. For a minority of experienced mortgage-savvy consumers, not talking to a mortgage salesperson is a draw. If that matters to you, you won’t get a fast, purely online mortgage experience at BMO.
• BMO’s instant pre-approval requires a hard credit check
  • By contrast, the gold standard are lenders who will hold a rate without a hard credit check.
  • BMO's approach would not appeal to anyone who wants a quick rate hold, but doesn’t want to commit until they’ve had a chance to shop around or negotiate better terms.
• It’s only available on purchases.
  • BMO has no digital mortgage solution for borrowers who are switching from another lender and/or refinancing.
• Qualification is based on just a 25-year amortization.
  • BMO says, “Once pre-approved, a BMO mortgage specialist will assist customers if they would like to opt for a longer amortization or the Homeowner ReadiLine product.” The problem is, a 25-year amortization reduces the amount you can qualify for if you have a 20% down payment.
• You must be employed for at least two years to use it.
  • If you’re recently graduated from university and newly employed, you’re out of luck.

In Sum

Banks have finally realized that millions of Canadians don’t want to meet in person with a mortgage specialist or drive to a branch to get a mortgage. It’s great to see banks like BMO doing more to serve this market.

That said, BMO’s Digital Pre-Approved Mortgage is a minimum viable product, nothing earth-shattering. It’s a conservative opening move in preparation for the online mortgage wars that lie ahead for Canada’s banks. And like the mortgage sites of its bank peers, BDPAM seems like it was designed not to cannibalize BMO’s existing branch and mortgage specialist networks.

In other words, while it offers some perks and improvements, it’s an intentionally "safe" interface meant not to upset the bank’s legacy mortgage origination channels. And you can't blame the bank for that. The problem is, “safe” won’t win you market share.