• mobile: 604-765-8873
"I work for YOU, not the lender"

Blog by Linda M Linfoot

<< back to article list

Mortgage Amortization

Amortization – Longer or Shorter

Choosing the length of your amortization period, which means the number of years you will need to

pay 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.