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15 Years to Go

Hourglass and house real estate conceptThat’s the average time remaining before the typical mortgage holder will be free and clear, according to a BMO survey released today.

In addition, only 12% of Canadians have greater than 25 years left until their mortgage is repaid. (Not surprisingly, a disproportionate number live in B.C. where prices are 38% above the national average.)

BMO also found that:

  • 24% of mortgagors don’t make any additional payments other than their basic mortgage payments
    • That’s quite a difference from CAAMP’s finding that 50% of mortgagors haven’t made any extra or accelerated payments.
  • 21% make lump sum prepayments
    • This isn’t far from CAAMP’s statistic of 19%
  • 43% prefer to increase their mortgage payments over time
    • These are people who do not make lump sum prepayments but increase their regular payments instead.
  • 58% of those making lump-sum prepayments can afford only a 10% lump sum payment or less
    • Only 16% said they could afford to make a lump sum payment over 10%
    • 25% answered “I don’t know/ I prefer not to answer.”
    • It’s not uncommon for mortgagors to make a large lump-sum prepayment right before breaking their mortgage early in order to reduce their balance for penalty calculations.

Historically speaking, the impact of extra payments is clear. According to CAAMP, lump sum and accelerated payments have helped people pay off their mortgage in one-third less time than their original amortization.

laura-parsons-bmoLooking ahead, Laura Parsons, Area Manager of Mortgage Specialists at BMO, is optimistic that amortization periods will improve further. “(The) average mortgage repayment timeline will likely decrease as a result of the new mortgage regulations,” she says.

Of course, with all the coming mortgage rules, it remains to be seen how many consumers will substitute high-interest consumer debt for low-interest mortgage debt. That will definitely lengthen some people’s amortizations after origination, but hopefully not by much.

Survey Details: Leger Marketing performed BMO’s survey on-line from March 19th to March 22nd, 2012. The sample included 1,000 Canadian homeowners and has a ± 3.1% margin of error, with a 95% confidence level.

Rob McLister, CMT