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The ABCs of Mortgages
Amortization
The amortization is the length of time it takes to pay off a mortgage, assuming that the interest rate and payment amount do not change, that all payments are made on time and that no additional payments are made.
In Canada, until recently, the longest amortization period on a mortgage was typically 25 years. Today, some institutions may offer a period of up to 40 years. Although a longer amortization period may mean lower mortgage payments, it is to your advantage to choose the shortest amortization period that you can afford. This will save you thousands of dollars in interest in the long run. The following table shows how much interest is paid (over the entire amortization period) on a $150,000 mortgage, assuming a constant annual interest rate of 6.45 per cent.
Example - Amortization vs. interest paid
| Mortgage amount | Amortization | Monthly payment | Interest paid |
|---|---|---|---|
| $150,000 | 40 years | $865 | $264,620 |
| $150,000 | 35 years | $890 | $224,795 |
| $150,000 | 30 years | $935 | $186,540 |
| $150,000 | 25 years | $1,000 | $150,060 |
| $150,000 | 20 years | $1,105 | $115,550 |
| $150,000 | 15 years | $1,295 | $83,200 |
| $150,000 | 10 years | $1,690 | $53,150 |
