Longer amortization periods, or shorter ones? Your amortization period's length will affect the total cost of your mortgage. The amortization period refers to the number of years in which you need to pay your mortgage in full. For the past years, the standard amortization period in the banking sector has been 25 years. This is the benchmark utilized by most lenders when discussing mortgage offers. However, you can always choose longer or shorter time frames.
A shorter amortization period means that you enter the realm of being a real home owner that is free and clear on their initial lump sum mortgage, pay significantly reduced interest, and establish home equity faster. Equity means the difference of the home's market value and any outstanding mortgage on it; how much money you can claim as asset. You can then use your equity as security for financing the education of your children, home renovations, other property investments, and many others.
There are, of course, other factors to consider. By reducing the total number of mortgage payments to make, the amount of each regular payment will be increased. If you don't have a regular income or if you're buying your first home and will be burdened with a large mortgage, this may not be the appropriate option.
A longer period of amortization also has its advantages. You can have your dream home more quickly with a longer period of amortization. When applying for a mortgage, lenders compute the ceiling amount you can afford as regular payment. That amount is then used to compute the total amount they will loan as mortgage. A longer period of amortization lowers the regular principal amount and interest payment by allocating payments over a longer time period. So you could be entitled to a greater mortgage amount than you expected, or be qualified for your mortgage earlier than you projected. Whichever way, you end up with your dream house sooner than you imagine. A longer period of amortization may appeal to majority of people as regular payments are can be similar or even cheaper than paying rent, but in the long run, it also means having to pay more interest over the duration of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
A shorter amortization period means that you enter the realm of being a real home owner that is free and clear on their initial lump sum mortgage, pay significantly reduced interest, and establish home equity faster. Equity means the difference of the home's market value and any outstanding mortgage on it; how much money you can claim as asset. You can then use your equity as security for financing the education of your children, home renovations, other property investments, and many others.
There are, of course, other factors to consider. By reducing the total number of mortgage payments to make, the amount of each regular payment will be increased. If you don't have a regular income or if you're buying your first home and will be burdened with a large mortgage, this may not be the appropriate option.
A longer period of amortization also has its advantages. You can have your dream home more quickly with a longer period of amortization. When applying for a mortgage, lenders compute the ceiling amount you can afford as regular payment. That amount is then used to compute the total amount they will loan as mortgage. A longer period of amortization lowers the regular principal amount and interest payment by allocating payments over a longer time period. So you could be entitled to a greater mortgage amount than you expected, or be qualified for your mortgage earlier than you projected. Whichever way, you end up with your dream house sooner than you imagine. A longer period of amortization may appeal to majority of people as regular payments are can be similar or even cheaper than paying rent, but in the long run, it also means having to pay more interest over the duration of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
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An amortization schedule, a table detailing each periodic payment on a loan, shows this ratio of principal and interest and demonstrates how a loan's principal amount decreases over time. An amortization schedule can be generated by anamortization calculator.
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