BMO encourages 25-year amortization period with low rate incentive

In a news release yesterday, BMO states that nearly seventy percent of Canadians are “open to the idea of shorter amortizations.” The big bank is encouraging borrowers to consider the shorter, more traditional amortization period by offering low mortgage rate of just 3.54% on their five-year fixed, currently their lowest fixed rate option.

The BMO release offered the following tips for becoming mortgage free faster.

Consider a shorter amortization

  • The shorter the life of the mortgage, the less you pay in interest.
  • A shorter amortization means that you can become mortgage free faster and begin saving more for retirement.

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 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.
  • If you make a down payment of 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).
 This option can be exercised once each calendar year, at any time, without charge.

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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Norm Fisher
Royal LePage Vidorra


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