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Majority of Canadians Open to Considering a Shorter Mortgage Amortization: BMO

TORONTO, Ontario, December 08, 2010 — BMO encourages Canadians to consider choosing a mortgage with a 25-year maximum amortization to help them save interest costs and pay down their mortgage faster. A BMO survey showed that 69 per cent of Canadians are open to the idea of a shorter amortization.

“While the purchase of a home represents an important investment for many Canadians, those looking to get into the housing market now or in the near future should be considering financially responsible options, such as a 25 year amortization, to ensure they can pay down debt faster and begin saving more for their long term goals,” said Martin Nel, Vice President, Lending and Investment Products, BMO Bank of Montreal. “Canadians should be realistic in measuring what they are able to afford when it comes to the purchase of a home. Taking on a larger mortgage with a longer amortization in order to afford a ‘faux chateau’ will mean carrying the debt load longer and ultimately paying more in interest over the full term.”

To make it easier for Canadians to be mortgage-free faster, BMO offers an industry-leading five-year fixed low rate mortgage with a maximum 25-year amortization at 3.54 per cent.

BMO offers the following tips for Canadians to manage household finances and become mortgage-free faster:

Consider a shorter amortization:
- The shorter the life of the mortgage, the less you pay in interest.
- In addition, 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.
- Furthermore, 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.

News source: BMO Financial Group


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