BMO Financial Tip of the Week: Choose 25-Year Amortization to Save Thousands Over the Life of Your Mortgage
TORONTO, ONTARIO–(Marketwire - March 14, 2012) - As part of BMO Financial Group’s ongoing commitment to financial literacy and ‘Making Money Make Sense’ for Canadians, BMO is releasing a financial tip every week in 2012.
BMO’s Financial Tip of the Week:
Choose a shorter amortization
The amortization period is the length of time it will take to pay off an entire mortgage. By choosing a shorter amortization, you can save thousands of dollars in interest costs and become debt-free faster.
Save money by paying less interest
The shorter the life of the mortgage, the less you pay in interest. Choosing a mortgage with a 25-year amortization instead of a 30-year amortization can save thousands of dollars in interest costs over the life of your mortgage.
Below is an example of how choosing a 25-year instead of a 30-year amortization can save you a significant amount in interest: 25-Year Amortization 30-Year Amortization Mortgage Value $ 400,000 $ 400,000 Mortgage Rate* 5 per cent 5 per cent Bi-weekly Payment Amount $ 1,068.87 $ 980.81 Total Interest Cost $ 297,092.55 $ 367,588.30 * The chart above assumes an average interest rate of 5 per cent over the life of the mortgage
“By choosing a 25-year amortization, you can throw a mortgage burning party five years sooner than your friends and put more money towards post-secondary education expenses or retirement,” said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal.
Currently, BMO offers a 5-year fixed low-rate mortgage at a rate of 2.99 per cent as well as the new BMO 10-year fixed low-rate mortgage at 3.99 per cent. Both carry a maximum 25 year amortization.
Become debt-free sooner
Choosing a shorter amortization means you can have a mortgage burning party sooner - allowing you to get a head-start on other financial goals, such as saving for retirement.
Build home equity sooner
The shorter the amortization period, the sooner you can begin building home equity. This equity can then be used to finance other important life events, such as post-secondary education for your children, a family vacation property or renovation and expansion of your current home.