The amortization period is the length of time it takes to pay off a mortgage in full.
The amortization period is not the same as the mortgage term, which is the length of time your mortgage agreement will be in effect (for example, five years).
If your down payment is less than 20% of the purchase price of your home, the longest amortization period allowed is 25 years.
Although a longer amortization period means lower mortgage payments, it is to your advantage to choose the shortest amortization period—that is, the largest mortgage payments—that you can comfortably 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 is paid (over different amortization periods) on a $200,000 mortgage, assuming a constant annual interest rate of 4.5%.
|How amortization affects the interest you will pay|
|Mortgage amount||Amortization||Monthly payment||Total interest paid|