BMO Financial Group
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BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

April 25, 2012 09:07 ET

BMO Mortgage Report: Canadians "Married with Children" Prefer Shorter Amortization

- Overall, half of Canadians are leaning towards a shorter amortization to pay off their mortgage sooner

- Alberta leads the way

- According to BMO Economics, shorter amortizations key to strengthening household financial stability

TORONTO, ONTARIO--(Marketwire - April 25, 2012) - According to a new report released today by BMO Bank of Montreal, Canadians with children are more likely to choose a shorter amortization (63 per cent) to pay off their mortgage sooner. Overall, half of Canadians (50 per cent) would consider a shorter amortization.

"These numbers show Canadian homeowners are choosing responsible home financing options and are making building equity and saving on interest costs a priority," said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal. "For example, on a $400,000 mortgage at a 5 per cent interest rate, moving from a 30 year to a 25 year amortization can save upwards of $70,000 in interest over the life of the mortgage - which is compelling."

The BMO study also revealed regional differences, including:

  • Those in Alberta are most likely to choose a shorter amortization (61 per cent), while those in Ontario (53 per cent) are more than those in Quebec (45 per cent) to consider a shorter amortization
  • Those in the Prairies are the most likely to say they would very strongly consider a shorter amortization period (32 per cent)

According to a report by Douglas Porter, Deputy Chief Economist, BMO Capital Markets, and Benjamin Reitzes, Senior Economist, BMO Capital Markets, financial stability for Canadian homeowners in the coming years will be supported by locking into fixed term mortgages and opting for shorter amortization periods.

"Our interest rate outlook now projects that fixed mortgage rates will trump variable. While the decision ultimately depends on the individual, the low rate combined with a shorter 25-year amortization will significantly strengthen household financial stability," said Mr. Porter.

BMO offers the following tips for Canadians to help them become mortgage-free faster:

Stress-test your mortgage: Use a mortgage payment based on a higher rate to stress-test your budget; total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income. If your rate rises even 1 percentage point from 5 per cent to 6 per cent, you will need an additional $146 per month on a $250,000 mortgage amortized over 25 years.

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.

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.

Consider a shorter amortization: The shorter the life of the mortgage, the less you pay in interest. An amortization of 25 years or less will also ensure you build equity sooner.

The survey was completed on-line from February 21 to 23, 2012, using Leger Marketing's online panel, LegerWeb. A sample of 1500 Canadians, 18+, were surveyed. A probability sample of the same size would yield a margin of error of +/-2.5%, 19 times out of 20.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $538 billion as at January 31, 2012, and more than 47,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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