TORONTO, ONTARIO--(Marketwire - July 9, 2012) - As the Federal Government's new mortgage measures announced in June officially take effect on July 9, a survey released today by BMO Bank of Montreal revealed that many Canadians are unfamiliar with the new mortgage rules.
The rule changes for government-insured mortgages include reducing the maximum amortization to 25 years from 30 years and lowering the amount of equity that can be borrowed against a home from 85 per cent to 80 per cent of the property's value.
The poll, conducted by Pollara, revealed:
- Nearly half (49 per cent) of Canadians are unfamiliar with the new measures put in place by Finance Minister Jim Flaherty
- The majority of Canadians do not know the maximum amortization period for government-insured mortgages in Canada, with only 45 per cent correctly identifying it as 25 years
- Currently, one-quarter (26 per cent) of Canadians believe the maximum amortization period for government-insured mortgages is 30 years or more
The results contrast with the fact that two-thirds of respondents (66 per cent) indicated they are familiar with the current mortgage rules in Canada. Laura Parsons, Mortgage Expert, BMO Bank of Montreal, noted that it is important that Canadians remain up-to-date on rules and regulations that can have a direct impact on their financial plans, goals and overall stability.
"For two years now, we've been talking to our customers about the financial implications of carrying debt over the long term and how opting for a maximum 25 year amortization can help them manage and meet their long term goals," said Ms. Parsons. "The recent changes are prudent, measured, responsible and timely, and will have an effect on how Canadians purchase property, so it's more important now than ever to seek clarity on the current guidelines in place."
BMO Economics noted that the new measures will help ease the overall burden of household debt in Canada and will have a significant impact on moderating the Canadian real estate market.
"By our estimate, to neutralize the impact on mortgage payments of the amortization rule change, average home prices would need to fall about three per cent. By helping to cool the market now, the rule changes should increase the odds of a soft - rather than hard - landing," said Sal Guatieri, Senior Economist, BMO Capital Markets.
The poll also revealed how the new guidelines will affect buying intentions and behaviour and found:
- 14 per cent of prospective home buyers say the latest changes make it less likely they will buy a new home in the next five years
- 41 per cent of those still planning to buy in the next five years say these changes make it more likely they will spend less on a home than they would have otherwise
- Nearly half (45 per cent) say it makes it more likely they will take out a smaller mortgage
Ms. Parsons added that the news rules appear to be having the desired effect if, as the numbers imply, Canadians borrow less and buy less expensive homes as a result of the changes.
BMO Bank of Montreal is encouraging Canadians to ensure they understand the financial implications of the new mortgage rules - including the benefits of choosing a 25-year amortization.
What has changed?
- Amid rising concerns regarding household debt in Canada, the Federal Government announced that it is reducing the maximum amortization for government-insured mortgages to 25 years from 30 years.
What does a shorter amortization mean?
- The amortization period is the length of time it will take to pay off an entire mortgage. With a shorter amortization, you can save thousands of dollars in interest costs and become debt-free faster.
How does a shorter amortization help improve the household balance sheet for Canadian homeowners?
- The shorter the life of the mortgage, the less you pay in interest. A maximum 25-year amortization can save thousands of dollars in interest costs over the life of your mortgage.
- A shorter amortization period allows homeowners to begin building home equity sooner. 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.
- A maximum 25-year amortization also 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.
The survey was conducted online between June 29 and July 4, 2012 with a random sample of 1,000 Canadians 18 years and older. A probability sample of this size would yield results accurate to ± 3.1 per cent, 19 times out of 20.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $525 billion as at April 30, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.