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Frequently Asked Questions
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FILE UPDATED TIME 03/07/2012 12:06:33 PM
TOTAL READ COUNT 2278
Question:
How does the amortization period affect the interest cost I pay on my mortgage?
Answer:
The longer the amortization period, the more your interest costs will be. It is to your advantage to choose the shortest amortization— that is, the largest mortgage payments—that you can afford. You will pay off your mortgage faster and will save thousands or even tens of thousands of dollars in interest in the long run.
The following table shows how much interest you would pay if you were making monthly payments on a mortgage of $250,000, with a fixed annual interest rate of 5%.
| Amortization | Monthly payments | Total amount of interest paid |
|---|---|---|
| 10 years | $2,645 | $67,445
|
| 15 years | $1,970 | $104,656 |
| 20 years | $1,643 | $144,275 |
| 25 years | $1,454 | $186,204 |
In the table above:
- increasing your payment by just $189 from $1,454 to $1,643 per month means you would be mortgage-free five years earlier and save almost $42,000 in interest charges
- increasing the monthly payment by $516 from $1,454 to $1,970 would allow you to be mortgage-free 10 years earlier and save over $81,000 in interest.
To learn more about how to pay your mortgage down faster, read FCAC’s publication Paying Off Your Mortgage Faster.
Resource(s):
-
Mortgage Calculators
-
Paying Off Your Mortgage Faster
-
Understanding Credit
(Canadian Bankers Association)
Classification of this FAQ:
| Category | Sub-category |
|---|---|
| Mortgages | Applications |
| Interest | |
| Amortization period |
Related Question(s):
- What should I consider when choosing between a short-term or a longer-term mortgage?
- Does my financial institution have the right to impose a penalty when I renegotiate my mortgage?
- Can my financial institution make me take out insurance when I apply for a loan or a mortgage?
- Can my financial institution refuse to provide me with a copy of my mortgage appraisal, even though I've paid for it?
- Can I refuse to provide my financial institution with information about my income when I renew or apply for a mortgage?
- Why does a financial institution always ask for so much personal information before it makes a decision about granting a loan or a mortgage, or issuing a credit card, or increasing the limit on a card?
- What information must my financial institution give me when it grants me a loan?
- How can I get the lowest interest rate on my mortgage?
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