Mortgage tips from Canada's mortgage mavericks at BMO

BMO announced 2.99% promotional mortgage in January.

This month BMO announced the lowest 5-year fixed rate ever for a Canadian bank at 2.99%. It comes as a two-week promotion, but some say the "restrictions" imposed can potentially outweigh the benefits of the cheap rate.

The editors at Canadian Mortgage Trends (CMT) posted a caution for eager home-owners considering taking advantage of the mortgage deal. "Once you close, you cannot discharge this mortgage for five years unless due to a bona fide sale of the property," CMT wrote. "Although, BMO does allow you to renew early, refinance to another BMO mortgage, or transfer your mortgage to a new property."

Regardless of the ins and outs of the promotion (talk to your favourite mortgage broker, we recommend Angela Wilton and Scott Dawson), the Montreal-based bankers put their heads together and came up with the following tips to help Canadians reduce mortgage debt and become mortgage free faster: 

Consider a shorter amortization:

• The shorter the life of the mortgage, the less you pay in interest. 
• Choosing a 25-year amortization can help you become mortgage-free faster and ultimately put more savings towards long term goals, such as retirement.

Make sure you can afford your home, both now and in the future:

• Stress test your financial budget using a mortgage payment based on a higher interest rate. If your rate rises even 1 percentage point from 5 per cent to 6 per cent, you will need an additional $146 per month on a $250,000 mortgage amortized over 25 years.
• Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.

Think about the future:

• View your home as an investment. Consider its location and accessibility, and whether or not renovations may be required down the road.
• Pay down short term debt before taking on a major financial commitment such as buying your first home or upgrading to a larger home.

Make a larger down payment:

• If you can provide a bigger down payment, it's a significant way of helping you pay less interest over the life of your mortgage.
• With a down payment of at least 20 per cent, you avoid paying mortgage default insurance.

Make pre-payments when you can:

• Pay accelerated weekly or bi-weekly instead of monthly.
• Increase your mortgage payment (principal and interest).

Think carefully about fixed vs. variable:

• While variable rate mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) provide the peace of mind of insulating you against rate increases and the certainty of knowing how much of your mortgage you will have paid down at the end of your term.

If you'd like to take advantage of these low interest rates and get in the Tsawwassen, Ladner, White Rock, Surrey or Vancouver housing market or make a switch from your current home or condo, contact Gene or Bill Watt by visiting www.genewatt.com or calling 778 668-7253.