Compared to even six years ago, today’s interest rates are a steal. The discounted 5-year fixed has tumbled more than 2.25 percentage points in that time. That gives mortgagors a chance to pay up to 30% more principal in the first five years of a standard mortgage.
But that savings potential isn’t motivating more people to pay extra on their mortgage, at least not according to a new poll. CIBC has found that 55% of today’s mortgagors are accelerating their mortgage amortization, down from 68% in the same survey last year. Here in Alberta though, 65% of homeowners are taking some action to repay their mortgage faster – the highest rate in the country.
CIBC doesn’t get into detail about how people are redeploying their spare cash, but it suggests that home renovation and summer vacation spending are up 30% and 20% this year, respectively. Could it be that Canadians are balancing their mortgage against other financial goals like paying down consumer debt which is typically at a much higher interest rate?
The average age that Canadian mortgagors expect to be mortgage-free also rose a bit. The national average is now 58, compared to 57 last year – now 55 in Alberta but 66 in BC. At this pace, it may not take long until a sizable minority of BC residents are bequeathing mortgages to their kids.
Additional findings from this year’s poll (among those with mortgages):
32% accelerated their payment frequency (vs. 42% in 2013)
28% increased their payment amount (vs. 30% in 2013)
18% made a lump-sum prepayment (vs. 15% in 2013)
If you want to know how making pre-payments can affect how quickly you pay off your mortgage, check out my past blog posts:
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