Mortgage amortization worries homeowners

By Staff | May 11, 2011 | Last updated on May 11, 2011
2 min read

More than half of Canadians would consider a shorter mortgage amortization, according to a survey from BMO Bank of Montreal.

The study further noted those aged 35-44 are the most likely to buy (77%). In addition, households with children are more likely than those without children to consider a shorter amortization (70% versus 48%).

“There are many strategies Canadians can put in place to ensure they pay off their mortgage quickly; one of the most direct ways is by choosing a shorter amortization,” said Katie Archdekin, head of mortgage products, BMO Bank of Montreal. “Cutting your amortization period from 30 to 25 years could save you thousands of dollars in interest payments over the life of the mortgage and allow you to put more money towards your retirement or other long term savings goals.”

BMO offers some 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 and the certainty of knowing how much of your mortgage you will have paid down at the end of your term.
Advisor.ca staff

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.