6 Helpful Mortgage Tips

Owe Canada: BMO Offers Canadians Tips on How to Reduce Mortgage Debt

TORONTO, ONTARIO--(Marketwire - June 28, 2011) - Recent figures show household credit market debt climbed to an all-time high of $1.524 trillion in Q1, or a record 147.3 per cent of disposable income. While growth in household debt has cooled in recent months, it continues to outstrip income growth. Furthermore, Bank of Canada Governor, Mark Carney, has spoken out about the housing market, advising homeowners and prospective buyers to be cautious ahead of higher interest rates.

Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal, suggests Canadians stress-test their mortgage in advance to make sure any potential increase in interest rates are manageable. "Currently, BMO Bank of Montreal offers a five-year fixed low rate mortgage to all Canadians at a current posted rate of 3.79 per cent. With a 25 year amortization, homeowners can save thousands of dollars in interest costs over the life of the mortgage."

BMO offers the following tips for Canadians to help them 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 per cent from 5 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.

Helpful Tips For You.: Financial Considerations When Buying A Home.

2. Savings: According to a recent study the average family in the United States has $117,951 worth of debt and only $3,800 in savings. 25% of Americans have no savings at al while over 50% have nothing saved for retirement. New college grads on average have over $20,000 in student loans to repay, yet the unemployment rate for graduates ages 20 to 24 was 8.7 percent in 2010. 3. Emergency Fund: Before you even begin to think about buying a house or moving, you should consider having an emergency fund equal to at least 6 months worth of expenses. Include all the necessities and things that must be paid. Those things include your rent or mortgage, car payments, insurance, food, gas money, electric, phone, tuition, day care, etc. Add all your monthly expenses up then multiply that number by 6. You need this kind of fund for when unexpected life events happen. Examples of these type of events can be a job loss, illness and a major car or home repair. 4. Monthly Payment: National banking standards tells us that your mortgage payment should be no more than 28 of your gross monthly income. This means that if you make $50,000 a year, the maximum amount you would safely want to pay each month is $1,166. How can you figure this for you own salary? Take your salary x .28 then divide the total amount by 12 (months in the year) and there you have it! 5. Downpayment: This is an additional savings on top of your emergency fund. And a downpayment should be at least 5 percent of your purchase amount. As an example. If your monthly expenses are $2,000. a month and you want to buy a $100,000 house, you'll need $17,000. in the bank to afford this move. This amount doesn't include money needed for closing costs and moving expenses.

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