BMO Financial Group

BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

November 26, 2010 14:25 ET

Hearing a Lot About Maximum 25-Year Mortgages? BMO the Only Big Six Bank to Offer Rate Incentive on a 25-Year Amortization

- Currently at an Industry Leading 3.54 Per Cent

- Choosing a Short Amortization Gets Canadians Out of Debt Faster, Allowing Them to Build a Bigger Retirement Nest-Egg

TORONTO, ONTARIO--(Marketwire - Nov. 26, 2010) - BMO Bank of Montreal advises Canadians to take only a 25-year amortization on their mortgage as a way to aggressively reduce debt by cutting the interest on their mortgage.

BMO is making it easier for Canadians to be mortgage-free faster with its industry-leading five-year fixed rate mortgage with a maximum 25-year amortization; the BMO low-rate mortgage. The current rate is 3.54 per cent – the best available in the market.

"The Bank of Canada has shown concern about relatively high levels of debt among Canadian households and interest rates are poised to move higher in the latter half of 2011," said Jennifer Lee, Senior Economist, BMO Capital Markets. "It's important homeowners stress-test their mortgage now to ensure they will not be affected as interest rates begin to move higher," said Ms. Lee.

"Stretching the limits of your budget by choosing the maximum amortization period and minimum down payment leaves you little wiggle room to deal with an unexpected financial challenge," said Martin Nel, Vice President, BMO Bank of Montreal. "A meaningful down payment and shortening your amortization will save you tens of thousands of dollars in interest costs. Come in and talk to us about how we can help you make money make sense," said Mr. Nel.

Top Tips to Consider:

Consider a shorter amortization:

  • The shorter the life of the mortgage, the less you pay in interest.

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.
  • Furthermore, if you make a down payment of least 20%, you avoid paying mortgage default insurance.

Make sure you can afford what you signed up for:

  • Stress-test your financial budget using a mortgage payment based on a higher interest rate.
  • Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.

Make pre-payments when you can:

  • Pay weekly or bi-weekly instead of monthly.
  • Increase your mortgage payment (principal and interest)
  • This option can be exercised once each calendar year, at any time, without charge.

Always make sure you save for a rainy day:

  • If you are up to your maximum in debt, you may not be well prepared for the leaky roof along the way.

Think carefully about fixed vs. variable:

  • While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases and knowing how much of your mortgage you will have paid down at the end of your term.

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