DiscoveryFinance.Com » Variable Rate http://www.discoveryfinance.com Discovering Financial Strategies to Build Million Dollar Wealth Mon, 12 Jul 2010 23:07:39 +0000 http://wordpress.org/?v=2.8.1 en hourly 1 Line of Credit: prime rate, base rate, variable rate http://www.discoveryfinance.com/line-of-credit-prime-rate-base-rate-variable-rate.html http://www.discoveryfinance.com/line-of-credit-prime-rate-base-rate-variable-rate.html#comments Fri, 14 Aug 2009 05:53:29 +0000 Ryan A. Smith http://www.discoveryfinance.com/?p=509 Recently, I went to Bank of Montreal to apply a line of credit. I thought the prime rate was pretty low currently at 2.25%, so perhaps it would be a good time to apply for LOC. However, I was wrong.

When I got the reply from BMO, the financial officer told me that if I would like to apply for an LOC $20,000, I had to show them a statement of $40,000 I currently had in my RRSP account. I guess they want to use that as a guaurantee for the creditline. That was no problem for me. However when I asked about the interest rate, the answer shocked me. The rate would be 7.5%!!! :shock: Of course, you will probably know the next question I asked—how is the line of credit interest rate calculated?

In summery, for a $20,000 line of credit:

  1. Proof of $40,000 RRSP asset
  2. Interest rate 7.5% = 2.25% prime rate + 2.5% base rate + 2.75% variable rate

The way BMO calculates their rate puzzles me a lot. I did online search many times, and all I could find is that the rate for LOC is calculated as prime + variable rate. I couldn’t find any site that says LOC rate = prime + base + variable.

I really wish someone shed some light on this rate matter for me!!! Anyone has the same situation as me with BMO???

Perhaps BMO is not a good bank for borrowing money. They will probably lose many clients for that weird rate formula.

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