Hey guys and welcome to my blog. I'm Chantelle Gerkes a realtor here in Brighton, Ontario.
I've been thinking about starting this blog since before I was fully licensed and had been going back and forth with possibilities to discuss but there are just so many I couldn't narrow it down. I also wanted this blog to be ongoing, evergreen, and grow with me so I've decided to base my blog around everything real estate and to do that, I'm going to be doing a number of series with the first one being The A-Z's of Real estate. We are going to start with the basics and go from there.
So let's just dive into today's our first entry and topic, starting at A, we are going to talk about Amortization. Many of you may already be familiar with this term, but for those of you who aren't or possibly not 100% certain, amortization is the number of years you will have to pay off your mortgage and is directly related to the interest rate for your current term.
Now in Canada, historically speaking the standard amortization period has been 25 years and if your down payment is less than 20%, the longest available option to amortize your mortgage. So are there options for individuals who want to amortize for a longer period of time? There are but when considering your amortization period be sure to weigh the pros and cons for your personal situation. A longer amortization period requires lower monthly payments however, you will be paying more in interest over the lifespan of your mortgage and as a result, may take longer to build equity in your home. And again, you will need a higher down payment as longer amortization terms are only available to those providing above a 20% down payment.
Now on the flipside, what about shorter amortization periods? Well shorter amortization periods are available and can save you money as you pay less interest over the lifespan of your mortgage. Lower amortization periods will see higher mortgage payments as you are paying off your balance in less time. This also allows for you to build equity in your home sooner, and be mortgage free sooner.
So here is a quick example to give you an idea of how mortgage amortization periods will effect your mortgage payments and overall interest paid:
| Details | 25 Year | 30 Year |
|---|---|---|
| Mortgage Principal | $150,000.00 | $150,000.00 |
| Monthly Mortgage Payment (P & I)(5 yr Term @ 4.00%) | $789.04 | $713.28 |
| Interests Costs for Full Amortization | $86,707.04 | $106,779.45 |
Choosing the longer 30-year amortization period would reduce your monthly mortgage payment by $75.76. However, you would also pay an additional $20,072.41 in total interest costs. (Calculated assuming a constant interest rate throughout amortization period over the life of the mortgage. Compounded, semi-annually not in advance.)
Ok so you've selected the amortization period that is right for your current situation but what happens if you want to change that? Well you do not need to stay with the amortization period you selected when you applied for your mortgage. There are options and it is a financially wise decision to re-evaluate your terms and amortization periods everytime you renew your mortgage. Be sure to speak with your lender or mortgage broker for more information on amortization periods and how this will or can effect your mortgage.
On the next episode we are going to stick with our A's and talk about Appraisals. Be sure to tune in to that episode as it will provide some insightful information on the appraisal process and how this effects your home value.
Thanks for joining me today to discuss everything real estate, I'll see you next time!