Mortgage Amortization
Amortization – Longer or Shorter
Choosing the length of your amortization period, which means the number of years you will need topay off your mortgage, is an important decision that can affect how much interest you pay over the life
of your mortgage.
Historically, the standard amortization period has been 25 years. However, shorter (10 or 15 years)
and longer (up to 40 years) time frames are also available.
A shorter amortization saves you money as you will pay less in interest costs over the life of your mortgage. Your regular
mortgage payment amount would be higher than if you had selected a longer amortization, as more of your payment goes
towards paying down your principal balance. However, the benefits are that you build the equity in your home faster and are
mortgage free sooner.
A longer amortization provides you lower monthly payments and because of this it is appealing to many people. However, it
does mean that more interest will be paid over the life of the mortgage and you will build the equity in your home at a slower
pace.
The chart below shows the impact of various amortization periods on the monthly mortgage payment and total interest costs
(over the full amortization). It is important to be aware that the total interest costs increase significantly if the amortization
period exceeds 25 years.
Example: Extended Amortization – 5 Year Fixed Rate Closed Mortgage
Details 25 Year 40 Year
Mortgage Principal $150,000.00 $150,000.00
Default Insurance Premium @ 90% LTV $3,000.00 $3,900.00
Total Mortgage Principal $153,000.00 $153,900.00
Monthly Mortgage Payment (P & I)
(5 yr Term @ 6.00%)
Monthly payment reduction from 25 Year Amortization
$978.91 $838.90
$140.01
Interests Costs for Full Amortization
Additional Interest Costs for the Full Amortization over the 25 Year
Amortization
$140,668.98 $248,753.29
$108,084.31
You have the flexibility to shorten your amortization period.Regardless of which amortization period you select when you originally applied for your mortgage, it does not
mean you have to stay with it throughout the life of your mortgage.
It makes good financial sense to re-evaluate your amortization every time you renew your mortgage.