BMO Financial Tip of the Week: Understand How the New Mortgage Rules Affect You and the Benefits of a Shorter Amortization
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: Understand how the new mortgage rules affect you and the benefits of choosing a shorter amortization.
In light of the new mortgage rules announced last week by Finance Minister Jim Flaherty, BMO is encouraging Canadians to ensure they understand what the changes are and how the new measures will affect them.
The rule changes - which take effect July 9, 2012 - include reducing the maximum amortization for government-insured mortgages to 25 years from 30 years. The amortization period is the length of time it will take to pay off an entire mortgage.
“The changes announced by Minister Flaherty are prudent, measured, responsible, timely and will help Canadians become mortgage-free faster, pay less in total interest, and secure a debt-free retirement,” said Laura Parsons, Mortgage Expert, BMO Bank of Montreal. “These changes are also perfectly aligned with BMO’s ongoing efforts to encourage Canadians to choose a mortgage with a shorter amortization - which is a great way to help keep the household balance sheet in order.”
Benefits of a shorter amortization:
The shorter the life of the mortgage, the less you pay in interest: Choosing to pay off your mortgage in a shorter period of time means that the total interest you pay over the life of the mortgage is greatly reduced.
Begin building home equity: A shorter amortization period allows you to build home equity sooner. This equity can then be put towards other financial priorities, such as saving for retirement or helping a child with post-secondary education expenses.
Throw a mortgage-burning party earlier: Paying off your mortgage earlier can help prevent taking mortgage debt into retirement. This eliminates a significant amount of debt and keeps you from having to manage higher debt loads after you stop working.
Ms. Parsons added that on a $400,000 mortgage at a 5 per cent interest rate, the move from a 30-year to a 25-year amortization can save Canadians upwards of $70,000 in interest over the life of the mortgage.