BMO STUDY: Canadians On Track to be Mortgage-Free in 15 Years

A survey released by BMO Bank of Montreal revealed that Canadians have an average of 15 years left on their mortgages.

The survey, conducted by Leger Marketing revealed:

Amount of Years Left on Mortgage TOTAL BC AB MB/SK ON QC ATL
5 or less 19 % 15 % 22 % 24 % 21 % 15 % 17 %
6 to 10 19 % 22 % 13 % 20 % 21 % 17 % 16 %
11-15 18 % 18 % 17 % 18 % 17 % 20 % 20 %
16-20 20 % 14 % 21 % 16 % 20 % 23 % 17 %
21-25 13 % 11 % 12 % 11 % 13 % 14 % 17 %
Over 25 12 % 20 % 14 % 12 % 7 % 12 % 13 %

Laura Parsons, Mortgage Expert, BMO Bank of Montreal, said the numbers are encouraging.

“These results suggest homeowners have made responsible choices and are in a good position to be debt-free in a reasonable amount of time,” noted Ms. Parsons. “Furthermore, this average mortgage repayment timeline will likely decrease as a result of the new mortgage regulations, as many buyers after July 9 will be required to have 25-year amortizations.”

Ms. Parsons added that the lowering of the refinancing limit to 80 per cent of home equity – as included in the new measures – may also encourage some owners to pay down their mortgage faster to increase refinancing options later. That, combined with an amortization of 25 years or fewer, will allow Canadian homeowners to become mortgage-free faster, pay less in total interest and help secure a debt-free retirement.

Sal Guatieri, Senior Economist, BMO Capital Markets, noted that the measures announced last week by Minister of Finance Jim Flaherty will help ease the overall burden of household debt in Canada and have a significant impact in moderating the Canadian real estate market.

“The new rules, which limit the availability of insured mortgages to amortizations of 25 years or fewer and to homes worth less than a million dollars, will curb demand and thus dampen prices,” said Mr. Guatieri. “By our estimate, to neutralize the impact on mortgage payments of the amortization rule change, average home prices would need to fall about 3 per cent. By helping to cool the market now, the rule changes should increase the odds of a soft – rather than hard – landing.”

The survey also showed how Canadians currently manage their mortgage payments and found:

  • Two in five (43 per cent) prefer to increase their mortgage payments over time
  • One in five (21 per cent) opt for a lump sum payment; with the majority (58 per cent) able to afford only a 10 per cent lump sum payment or less
  • One-quarter (24 per cent) do not make any additional payments other than their basic mortgage payments

BMO provides the following tips and advice to become mortgage-free faster:

Choose a shorter amortization: Choose a mortgage with a shorter amortization, which allows you to begin building equity in your home sooner. A shorter amortization will help you pay less in total interest, protect against the possibility of rising interest rates and help secure a debt-free retirement.

Increase your payments: Paying a little more on your principle can shorten the length of your mortgage. Rounding up your payments – even by a few dollars – can shave off a few monthly payments at the end of the mortgage.

Switch to bi-weekly: Try to increase the frequency of your payments from monthly to bi-weekly. Bi-weekly payments take advantage of the number of weeks in the year. If you split the full payment into bi-weekly payments, you’ll end up paying 26 half-payments, or the equivalent of 13 full payments in one year.

The Leger Marketing survey was completed on-line from March 19th to March 22nd, 2012, using Leger Marketing’s online panel, LegerWeb, with a sample of 1000 Canadian homeowners. A probability sample of the same size would yield a margin of error of ± 3.1 per cent, 19 times out of 20