Mortgage Tips: The Impact of Shorter Mortgage Amortization Terms

According to a BMO survey more than half of Canadians would consider a shorter term for their mortgages in order to save on interest costs in the long run. Those aged 35 to 44 were the most open to shorter amortizations, with 77% saying it was something they would consider. The survey also found 70% of families with children would consider shorter amortizations, compared with 48% of those without children.

To curb excessive borrowing, effective March 18th 2011 the government is cutting the maximum length of time a mortgage can be taken out with government insurance from 35 years to 30 years. Longer time spans means initial mortgage payments are lower, but the homeowner ends up paying much more over the life of the loan.

“For example, on a $250,000 mortgage at 6% interest rate, moving from a 30 year to a 25 year amortization period can save upwards of $55,000 in interest, which can be put directly towards your retirement,” said Katie Archdekin, head of mortgage products with BMO Bank of Montreal. "But your payment would change from $1,487.06 a month to $1,599.52... Or for only a $100 a month more, you can save THOUSANDS over the life of your mortgage."

The BMO poll also found 62% of men were more likely to consider shorter amortizations, compared with 50% of women. BMO Economics expects the Bank of Canada to begin raising its interest rates in summer, moving from 1% to 2% by year-end.

Both TD Canada Trust and CIBC introduced quarter-point hikes to their benchmark five-year closed mortgage rates last week. The going fixed rate is now 5.44%, though both banks are offering lower promotional rates. (Gord's best rates show 3.79%)

Contributed by:
Gord Shepherd
Mortgage Broker
Invis, Okanagan Valley, BC
Website: http://okapprovedmortgages.com Office: 250-717-6838
Opinions are those of the author and may not reflect those of Invis.