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Mortgage Amortization, Short or Long? A Few Considerations

You’ve just bought a home – congratulations! Being a homeowner is a big step, but it also comes with big responsibilities. As a homeowner, you need to make sure that you can maintain your house while also meeting your monthly mortgage payments as well as other expenses.

 

Mortgage amortization is the amount of time it will take you to pay off your entire mortgage.  This is not the term that the interest rate is set for! While some people want a short amortization to pay off their mortgage quickly, this isn’t for everyone. Read on for more information regarding mortgage amortization.

Do You Want Lower or Higher Monthly Payments?

The first thing you should ask yourself is how much you are able to pay each month. Calculate how much you are comfortable to pay, and then calculate whether it is possible for you to increase these monthly payments. If you choose to pay a higher amount each month then you will be mortgage-free much faster – and you’ll end up paying far less interest. That being said, you need to ensure that you can afford to pay much higher mortgage payment each month.

 

Another thing to consider is how much money you paid for the down payment. If you paid less than 20 percent, then chances are the longest amount of time you have to fully pay your mortgage is 25 years. The Federal Government has regulated that high ratio Insured mortgage can only be amortized to a maximum of 25 years.

How Much Interest Are You Willing To Pay?

While lower monthly payments might be appealing, you need to factor in interest cost. The longer you spend paying off your mortgage, the more interest you will end up paying. For example, if your mortgage is $100,000 and your interest rate is 2.69% for a 5 year fixed term percent,  interest  and principle payment  will differ depending on whether you have a 25-year mortgage amortization or a 30-year mortgage amortization. General rule of thumb is the lower the amortization the higher the principle and interest payment, the sooner you are mortgage free and the Least amount of interest cost is paid to the lender.

 

Be sure to check with different lenders and mortgage brokers. The lower the mortgage interest rate the lower your cost in interest. After all, it’s possible to find lenders with the lowest mortgage rates if you do your research carefully.  Compare the Bank and mortgage broker rates. Don’t necessarily agree to work with the first lender you speak with

Re-evaluate Your Mortgage Often

It’s important to realize that you’re not stuck in a mortgage amortization. It’s a good idea to re-evaluate your amortization when you renew your mortgage. After some examination, you might decide to alter your mortgage payment by increasing or decreasing your amortization. While most lenders are flexible and will allow you to do this at the time of renewal, other lenders may not be as flexible. Again, check with your lender before you sign your mortgage documents.

 

When deciding on your mortgage amortization, it’s important to factor in how much time you want to spend paying off your mortgage as well as how much interest you’re willing to pay. If you decide on a short amortization, be sure that you can afford these higher monthly payments. Alternatively, if you decide on a longer amortization, know that you’re not stuck in this plan; it’s possible to renegotiate.

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