BMO Bank of Montreal

BMO Bank of Montreal

February 08, 2011 06:00 ET

New BMO Survey Shows ‘Married with Children’ Canadians More Likely to Choose a Shorter Amortization

- Households with children are more likely than those without children to consider a shorter amortization (70 per cent versus 48 per cent)

- New data also reveals differences between men and women on choosing a shorter amortization

- BMO Economics expects Bank of Canada rate to increase in the summer

- BMO currently offers an industry-leading five-year fixed low rate mortgage with a maximum 25-year amortization at 3.69 per cent

TORONTO, ONTARIO--(Marketwire - Feb. 8, 2011) - BMO Bank of Montreal has released the results of a survey showing households with children are more likely than those without children to consider a shorter amortization (70 per cent versus 48 per cent). The results were released on the heels of a recent decision by the federal government to reduce the maximum amortization period to 30 years from 35 for new government-backed insured mortgages, effective March 18th, 2011.

"These results clearly indicate that Canadians are open to the idea of a shorter amortization, which not only helps to pay off your mortgage faster, but also saves you money long-term,” said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal. “For example, on a $250,000 mortgage at a 6 per cent interest rate, moving from a 30 year to a 25 year amortization can save upwards of $55,000 in interest, which can be put directly towards your retirement."

The BMO study, conducted by Leger Marketing, also revealed:

  • More than half of Canadians would consider a shorter mortgage amortization, with those aged 35-44 the most likely to buy in (77 per cent).
  • Men are more likely than women to consider a shorter amortization (62 per cent versus 50 per cent).

According to BMO Economics, the Bank of Canada is expected to start increasing its overnight rates in the summer, moving from 1 per cent to 2 per cent by year end. BMO suggests Canadians stress-test their mortgage in advance to make sure any potential increase in interest rates are manageable.

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

Consider a shorter amortization:

  • The shorter the life of the mortgage, the less you pay in interest.
  • Become mortgage free faster and begin saving more for retirement.

Make sure you can afford what you signed up for:

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

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.

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