The main benefit of choosing a mortgage with a longer amortization period is lower monthly mortgage payments. This can be a huge benefit if your income fluctuates month to month, if you are carrying a large mortgage, or if you are buying your first home. Longer amortization periods can also make it easier for you to buy a more expensive home because they can help you get approved for a larger mortgage.
Mortgages with longer amortization periods are good because they allow you to minimize risk. Since your monthly payments are lower with a longer amortization period If you lose your job or become too ill to work the payments will be more manageable than if you had the higher monthly payments associated with a shorter amortization mortgage. Many first time homebuyers find that shorter amortization mortgages put a lot of stress on their finances. Until you are actually living in your house and know what your other home-related monthly bills are heating, electricity, etc.
Again, you can always pay more, but you cannot pay less than the minimum contractual payment. A longer amortization period means lower monthly payments, and gives you more financial breathing room that can be used to cover non-mortgage related household expenses. A longer amortization period can also help you achieve your homeownership dreams while also prioritizing other higher interest debt, such as credit cards or contribute more money to your retirement fund or living expenses.
If a longer amortization period makes the most sense for you when you first purchase your home, but your financial situation changes, you can always shorten your amortization.
As mentioned, you can simply increase your payments or make a lump sum payment towards the mortgage principal. Also, when the mortgage comes up for renewal, you can further reduce the amortization. Shortening your amortization period or making a lump sum payment reduces the amount of interest you will end up paying overall and allows you to become mortgage free sooner.
Though restricted to certain types of mortgages, year amortizations are becoming increasingly popular. This means that many individuals who wish to become first-time homebuyers may not be able to afford the monthly payments associated with mortgages with even 25 year amortization periods.
Canadians are also carrying more debt than ever, a trend that is fueled by student loans, the rising cost of living, and poor spending habits. This means that many Canadians are already saddled with large amounts of debt, reducing the amount of money they have each month to put towards a mortgage. We will also assume a 5.
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 two different 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. Let one of our mortgage specialists help determine the amortization period that is right for you.
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.
And even though the rates are higher than a short-term mortgage, it can help you manage your budget accordingly. If you are looking to minimize your monthly payment, a longer repayment period is perfect. If you are looking to pay off your mortgage faster, a shorter amortization period is the way to go. You can make this type of project affordable by adding a line of credit to your mortgage, using existing equity or keeping your mortgage payments low.
Refinancing frees up cash you may need for the unexpected. If you choose to refinance, you must pay out the mortgage in full and arrange a new mortgage with the same or a new lender. However, you will be expected to pay extra fees such as appraisal, legal and other costs, as it is considered a brand-new mortgage. Becoming mortgage-free requires some planning. Taking a fresh look at your future and staying on top of your renewals will not only help you get the best deal, it will also help you enjoy the benefits of home ownership sooner.
March 21st, Original article: The Province Read original aricle here. Post navigation Tidy Up!
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