BMO Bank of Montreal

BMO Bank of Montreal
BMO Financial Group

BMO Financial Group

September 28, 2011 15:23 ET

BMO: 25 Year Amortization is the Right Mortgage for Right Now

BMO offers tips on how to become mortgage free faster

TORONTO, ONTARIO--(Marketwire - Sept. 28, 2011) - While the Bank of Canada has been holding the line on interest rates over the last few quarters, the current low interest rate environment is no reason for homeowners to let their guard down when it comes to managing their overall household debt, including their mortgages.

"Regardless of the current low interest rates, it is still important for homeowners or potential buyers to be prudent and stress-test their mortgage against a higher interest rate to ensure they can afford what they signed up for. Total housing expenses should not consume more than one-third of total household income," said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal.

Ms. Archdekin added that Canadians need to be continually examining ways to reduce overall housing costs. "BMO has developed products, such as the low rate mortgage with a maximum 25-year amortization, that we believe are directly relevant to today's environment and specifically designed to help Canadian consumers manage their debt. Furthermore, the lower amortization can significantly reduce the amount of interest paid over the life of the mortgage."

BMO Bank of Montreal offers a five-year fixed low rate mortgage to all Canadians at a current posted rate of 3.59 per cent.

BMO offers the following tips for Canadians to help them reduce mortgage debt and become mortgage free faster:

Consider a shorter amortization:
The shorter the life of the mortgage, the less you pay in interest.
Choosing a 25 year amortization can help you become mortgage free faster and ultimately put more savings towards long term goals, such as retirement.
Make sure you can afford your home, both now and in the future:
Stress test your financial budget using a mortgage payment based on a higher interest rate. If your rate rises even 1 per cent from 5 to 6 per cent, you will need an additional $146 per month on a $250,000 mortgage amortized over 25 years.
Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.
Think about the future:
View your home as an investment. Consider its location and accessibility, and whether or not renovations may be required down the road.
Pay down short term debt before taking on a major financial commitment such as buying your first home or upgrading to a larger home.
Make a larger down payment:
If you can provide a bigger down payment, it's a significant way of helping you pay less interest over the life of your mortgage.
With a down payment of at least 20 per cent, you avoid paying mortgage default insurance.
Make pre-payments when you can:
Pay weekly or bi-weekly instead of monthly.
Increase your mortgage payment (principal and interest).
Think carefully about fixed vs. variable:
While variable rate mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) provide the peace of mind of insulating you against rate increases and the certainty of knowing how much of your mortgage you will have paid down at the end of your term.

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