Robert McLister·
Mortgage Commentary
·

People Open To Shorter Amortizations: BMO

BMOIt seems Canadians want to be mortgage-free as fast as they can.

That probably doesn’t surprise many people, but it’s BMO's latest finding nonetheless.  

In a release today, BMO says 69% of people it surveyed are “open to the idea of a shorter amortization.”

BMO adds: “…those looking to get into the housing market now or in the near future should be considering financially responsible options, such as a 25-year amortization.”

“Canadians should be realistic in measuring what they are able to afford,” BMO says.

We couldn’t agree more with that.

BMO’s solution:  Offer a great 5-year fixed rate of 3.54% to people who do the right thing and get a 25-year maximum amortization.

3.54% is a bargain if you don’t mind BMO’s restrictions, and it’s good to see BMO pushing borrower responsibility.

On the other hand, BMO doesn’t believe in the cause enough to eliminate 35-year amortizations altogether (thank goodness they don’t, for reasons noted last week). Nor does it offer the “25-year discount” on its 1, 2, 3, 4, 6, 7 and 10-year terms. Nor does it seem to discourage interest-only payments on its highly profitable ReadiLine product.

Moreover, we’ve heard BMO mortgage specialists say they can get the very same 3.54% rate for a BMO mortgage with a 35-year amortization (and without the other handcuffs of BMO’s Low Rate mortgage).

With this and Ed Clark’s seemingly contradictory position about amortizations last week, we’re inclined to wonder:  Is “borrower responsibility” mostly a PR buzz phrase with the banks, or is it a real movement?

It’s a fair question.

Sidebar: Just to clarify the point about Ed Clark (TD’s CEO), the Financial Post quoted him as speaking out against 35-year amortizations last week. Clark suggested 35-year mortgages discourage saving. Some labelled this a contradiction because of TD’s recent changeover to collateral charges (which promote re-borrowing to tap more of one’s home equity).

Robert McLister, CMT

Robert McLister
Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, and Founder of mortgage broker intelliMortgage Inc., RateSpy.com, a website comparing Canada's best mortgage rates and Mortgage Editor of RATESDOTCA.
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11 Comments

  1. I find the characterization of 25-year amortizations as “responsible” amusing. My first mortgage was for 15 years and I thought at the time that 15 years was an eternity.

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  2. Hmmm, wagers on whom of the Big 5 will come out with the next comment or suggestion the 25yr Am is the “responsible” way to go? Will it be RBC, CIBC or Scotia? Seems these like minded individuals at the top may be sitting at the round table with an orchestrated attempt to gently nudge rules once again, without the input of thousands of other Mortgage Professionals (who understand client cash-flow requirements and patterns while educating them on how to take advantage of mortgage features) and customers themselves, to decide what is best or “responsible” for everyone, and perhaps guiding Mr. Flaherty along with his puppet strings. The Big 5…anybody else believe in Bank Conspiracy?

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  4. This just increases the actual advisory role value proposition of mortgage brokers…
    Instead of the high and mighty bank saying “Mr. and Mrs. Borrower – DO THE RIGHT THING! (oh and by the way we’ll give you a slight discount that comes with a ton of restrictions, sign here now and don’t ask questions.)” the broker can ask the client relevant questions and together come up with the best overall strategy, with the amortization being a part of it. Banks don’t just do things out of the goodness of their own heart (not that this is a bad thing, Canadian bank shareholders obviously want them to turn a profit), but let’s just keep in mind that this is probably a campaign for the banks to try to position themselves as do-gooders (first TD, now BMO) that are advising the consumers about the right way to go about handling their debts… while as the post mentions above promoting their interest only products to no end. Contradictions, contradictions…

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  5. That’s a given. I have long thought that bank CEOs shouldn’t be allowed to golf together or attend the same parties. You never know what they’ll come up with after a few martinis.

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  6. Doesn’t the bank make less money if amortizations are shorter? I don’t see them providing discounts to customers who intend to pay off their mortgage ASAP.

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  7. Wow, what a concept ! People are actually “open” to this idea ? Shorter AM’s have only been around since like 1987.
    Carney put out the warning shots again today. Your debt levels are out of control but the masses may not be “open” to that idea, as well as the lenders who have no intention to lend responsibly.
    http://www.theglobeandmail.com/report-on-business/bank-of-canada-warns-risks-to-financial-system-rise-on-family-debt-euro-woe/article1831232/

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  8. BMO wants to be seen as the financial “good guys” encouraging responsibly borrowing and repayment.
    If that were actually the case they would also allow ample prepayment privileges to further encourage responsible borrowing and repayment.
    PR only!! The longer people are in debt, they better for the banks.

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  9. I can respect where you’re coming from Michael. On the other hand I find the characterization of 35 year amortizations as “irresponsible” amusing. I’m on commission and can easily make payments when times are good. You just never know when times will stop being good so it’s nice to have breathing room. That is why we took a 35 year amortization instead of a 25. We take the payment savings a plug it away in our TFSA. It makes for a nice emergency fund. Either way I have no plans to take over 20 years to pay off my mortgage.

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  10. I’d like to go on record and state that I’m open to winning the lottery. And I’m also open to dating Paris Hilton (feel free to pass that along to her people).

    Reply

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