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BMO Mortgage Report: Canadians “Married With Children” Prefer Shorter Amortization

This piece was originally published on August 8, 2012, and was updated on October 14, 2022. 

Canadian homeowners are considering more responsible home financing options to save big on equity and interest costs. A recent BMO mortgage poll finds that 63% of Canadians married with children prefer a shorter amortization to pay off their mortgage sooner. In particular, 61% of homeowners in Alberta are most likely to choose a shorter amortization compared to 53% in Ontario, 45% in Quebec, and 32% in the prairies. Overall, half of Canadians would consider a shorter amortization.

The head of Mortgage Products at BMO Bank of Montreal, Katie Archdekin, finds the numbers encouraging. She says, “homeowners who choose a shorter amortization period can save money in interest over the life of the mortgage. For instance, transferring from a 30 year to a 25 year amortization schedule can save upwards of $70,000 in interest over the life of the mortgage – which is compelling.”

Deputy Chief Economist and Senior Economist at BMO Capital Markets, Douglas Porter and Benjamin Reitzes say that in the years ahead, financial stability will be secured by locking into fixed term mortgages and shorter amortization periods rather than riskier variable mortgages and lengthy 30-year amortization periods. Fixed mortgage rates are predicted to trump variable rates because of their stable interest rate and the ability for homeowners to have a fixed monthly payment, allowing them to budget accordingly.

Tips to getting mortgage-free faster:

Stress-test your mortgage: Stress-test your mortgage by using a payment based on a higher mortgage rate. Total housing costs (including mortgage payments, property taxes and heating costs) should not consume more than 33% of your household income. If your rate rises even 1%, you will need an additional $146 per month on a $250,000 mortgage amortized over 25 years. You can perform these calculations using Ratehub.ca’s mortgage payment calculator.

Make a larger down payment: Larger down payments allow you to pay less interest over the life of your mortgage. A down payment of at least over 20% lets you avoid paying
CMHC insurance.

Opt for a shorter amortization: The shorter the life of the mortgage, the less you pay in interest, plus you’ll also ensure you build equity faster. You can use our amortization calculator to generate amortization schedules and play around with multiple scenarios to see what your payments would be with different amortization periods.  

The key result from the BMO poll is that half of Canadians prefer shorter amortization periods considering Jim Flaherty just reduced the maximum amortization period for insured mortgages to 25 years.

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