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BMO Bank of Montreal Reminds Homebuyers New Rules for Government-Backed Insured Mortgages Take Effect

TORONTO, Ontario, March 17, 2011 — BMO Bank of Montreal reminds Canadian homebuyers that the Government of Canada’s new rules for government-backed insured mortgages take effect on Friday, March 18.

The new measures are designed to support the long term stability of the Canadian housing market, and include reducing the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.

“The changes announced by Minister Flaherty are prudent, measured, responsible and timely,” said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal. “For many months, BMO has been encouraging Canadians to lower their total cost of household debt and to consider the benefits of a mortgage with a 25-year maximum amortization to help them save interest costs and pay down their mortgage faster.”

Archdekin noted that the changes should sit well with Canadians. A recent BMO survey showed 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).

BMO offers an industry-leading five-year fixed low rate mortgage with a maximum 25-year amortization at 3.89 per cent.

As part of BMO Bank of Montreal’s ongoing commitment to enhancing the financial literacy of Canadians, BMO offers the following tips:

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 can avoid the added cost of 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 and the certainty of 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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