The amortization period means the number of years within which to fully pay your mortgage. The standard amortization period in the banking industry has been 25 years. However, longer or shorter periods are available. It is important as it affects the total amount of interest you'll pay over the duration of your mortgage.
Why would you choose a shorter period of amortization? A shorter amortization period means you can be mortgage-free earlier. Since you pay off your mortgage more quickly, the amount of interest you pay is considerably less. Also, you establish home equity faster with a shorter period of amortization. Equity means the difference in the home's market value and any outstanding mortgage on it. It's the worth in money you can declare as your asset. This equity can then be used as security for funding the education of your kids, home renovations as well as other property investments, and many more.
There are, of course, other factors to consider. By reducing the total number of mortgage payments to make, the amount of each regular payment will be increased. If you don't have a regular income or if you're buying your first home and will be burdened with a large mortgage, this may not be the appropriate option.
Having a long amortization period also has advantages. You can move into your dream home faster with a longer period of amortization. Lenders compute the ceiling amount you can afford as regular payment when you first apply for your mortgage. That calculated amount will then be used to compute the total amount they will let you borrow as mortgage. An extended period of amortization lessens the regular principal amount and interest payment by distributing the payments over a longer time period. So you could be permitted to a greater mortgage amount than you expected, or be eligible for your mortgage earlier than you hoped. Whichever way, you get your dream house sooner than you imagine. Many people may choose a longer period of amortization since regular payments can be similar or perhaps even cheaper than paying rent. However, it translates to paying greater interest over the period of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
Why would you choose a shorter period of amortization? A shorter amortization period means you can be mortgage-free earlier. Since you pay off your mortgage more quickly, the amount of interest you pay is considerably less. Also, you establish home equity faster with a shorter period of amortization. Equity means the difference in the home's market value and any outstanding mortgage on it. It's the worth in money you can declare as your asset. This equity can then be used as security for funding the education of your kids, home renovations as well as other property investments, and many more.
There are, of course, other factors to consider. By reducing the total number of mortgage payments to make, the amount of each regular payment will be increased. If you don't have a regular income or if you're buying your first home and will be burdened with a large mortgage, this may not be the appropriate option.
Having a long amortization period also has advantages. You can move into your dream home faster with a longer period of amortization. Lenders compute the ceiling amount you can afford as regular payment when you first apply for your mortgage. That calculated amount will then be used to compute the total amount they will let you borrow as mortgage. An extended period of amortization lessens the regular principal amount and interest payment by distributing the payments over a longer time period. So you could be permitted to a greater mortgage amount than you expected, or be eligible for your mortgage earlier than you hoped. Whichever way, you get your dream house sooner than you imagine. Many people may choose a longer period of amortization since regular payments can be similar or perhaps even cheaper than paying rent. However, it translates to paying greater interest over the period of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
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When used in the context of a home purchase amortization is the process by which loan principal decreases over the life of a loan, typically an from a bank , credit union , mortgage broker or other issuing financial entity.