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What a 25-Year Amortization Means to Canadians: BMO

Canadians will have saved over $179 million in interest by choosing a BMO mortgage with a 25-year amortization(1)



TORONTO, ONTARIO--(Marketwire - June 21, 2012) - On the heels of changes to the mortgage market announced today by Finance Minister Jim Flaherty, BMO Bank of Montreal is encouraging Canadians to ensure they understand the financial implications of the new measures - including the benefits of choosing a 25-year amortization.

What has changed?
Amid rising concerns regarding household debt in Canada, the Federal Government announced today 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.

Below is an example of how moving from a 30-year amortization to a maximum 25-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 Costs $ 297,092.55 $ 367,588.30
Total Savings $ 70,495.75
*The chart above assumes an average interest rate of five per cent over the life of the mortgage

"With a 25-year amortization, you can throw a mortgage burning party sooner and put more money towards other financial priorities, such as post-secondary education expenses or retirement," said Laura Parsons, Mortgage Expert, BMO Bank of Montreal. "Customers who have selected the BMO five-year fixed rate mortgage with a maximum 25-year amortization so far in 2012 will have saved over $179 million(1) collectively by the time their mortgages have been paid off."

(1)Savings calculation is an approximation and is based on the total number of BMO customers (new, refinance, renewals) who have taken a BMO 2.99%APR low rate fixed 5 year mortgage since January 1, 2012 until May 23, 2012. Savings are based on (i) total interest savings of these customers (determined as on the difference between 2.99%APR and the lowest published rate from a Canadian chartered bank for the same time period or the customer's prior rate in the case of a refinance or an early renewal multiplied by the mortgage amount and the 5 year term) plus (ii) amortization savings of these customers (determined as the total amount of BMO mortgages granted during this time period multiplied by the percentage of customers who took a 30 year amortization, divided by the average mortgage balance of these customers and all multiplied by the average interest savings per customer for the average duration of a 5-year term at 2.99%APR on this average mortgage balance amount). The savings calculation assumes that no prepayment charges were payable by customers for refinances or early renewals and that the difference in interest rate described in (i) rate remains the same in the last 5 years of a 30 year term. The Annual Percentage Rate (APR) for the low rate fixed 5 year mortgage was 2.99%. APR assumes no fee(s) apply. If we required an appraisal, the appraisal fee would increase the APR.

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.

Media Contacts:
Matthew Duffin, Toronto
(416) 867-3996
matthew.duffin@bmo.com

Ronald Monet, Montreal
(514) 877-1873
ronald.monet@bmo.com

Laurie Grant, Vancouver
(604) 665-7596
laurie.grant@bmo.com

Internet: www.bmo.com
Twitter: @BMOmedia