What is it?

Mortgage amortization refers to the length of time it takes to pay off a mortgage in full. During this time, you’ll gradually reduce your loan balance through regular payments.

How long is a mortgage amortization period?

Mortgage amortization periods can vary. Typically, the amortization period is 25 years, however, shorter and longer timeframes may be available depending on the amount of your initial down payment. If your down payment is less than 20% of the home’s total cost, the longest allowable amortization is 25 years.

Shorter amortization periods (e.g., 15 years) result in less interest paid overall, however, your monthly payments will be significantly higher. Longer amortization (e.g., 25 years), helps spread out the payments for a longer period, making them more manageable, however, you’ll pay more interest over the loan’s lifespan.

How it works?

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Amortization schedule: you’ll get an amortization schedule which breaks down your payments over the years, including how much of each payment will go towards interest vs. the principal balance owing.

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Loan repayment: part of each payment will go towards the interest gained on the outstanding balance, while the remainder of your payment will reduce the principal amount owing.

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Interest vs. principal: as you begin paying off your mortgage, a larger portion of your payment will go towards interest. As your loan matures, the balance shifts and more of your payment will directly reduce the principal.

What’s the difference between a mortgage term and mortgage amortization?

Your mortgage term is the length of your current mortgage contract with us. It’s the period you’ve committed to specific terms such as interest rate, type of mortgage, etc. When your term ends, you’ll need to renew or renegotiate your mortgage. Terms range anywhere from six months to five years or more.

Your amortization period is the total lifespan of your mortgage – the amount of time it will take you to pay off your entire mortgage.

Ways to reduce your amortization period

For many homeowners, the ultimate goal is to be mortgage free! Even if you initially opt in for a longer amortization period to qualify for a mortgage, there are a few strategies to accelerate the process.

Here are a few ways to pay off your mortgage more quickly:

  1. Accelerated payments: By choosing an accelerated repayment option, you can make the equivalent of one extra payment per year. This can shave years off the total life of your mortgage loan (in some cases shortening your amortization period by up to 10 years!).

  2. Extra payments: Some mortgages allow you to make an extra lump sum payment each year. Consider using money from a bonus or tax return to make an extra payment on your mortgage, which will go straight to your principal amount and reduce your amortization period.

  3. Round up your payment amounts: Round your mortgage payment to the nearest whole dollar. For example, if your monthly payment is $1036.57, consider increasing it to $1050.00. This small amount will go directly to your principal and even a minor increase can make a significant difference over time.

  4. Keep your payment the same: When renewing your mortgage term at a lower interest rate, it’s tempting to reduce your payments. However, consider keeping your current payment amount the same to help pay down the principal more quickly.

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