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Choosing
an Amortization Period
Once you're settled on the type of mortgage that fits your financial circumstance, you are
ready to start considering the various options available. Amortization refers to the
number of years it will take to repay the loan in full - most commonly 25 years. Longer
amortization periods result in lower payments, but increase the total amount of interest
paid. If you can handle a shorter amortization period, you'll achieve tremendous savings
on the interest cost of your mortgage and live mortgage free sooner!
Example: If you have a $100,000 mortgage with an 8% interest
Amortization
Period |
Monthly
Payments |
Total of
Payments |
Total
Interest Paid |
Interest
Savings |
| 25 Years |
$ 763.21 |
$ 228,963. |
$ 128,966. |
----- |
| 20 Years |
$ 828.36 |
$ 198,806. |
$ 98,805. |
$ 30,161. |
| 15 Years |
$ 948.15 |
$ 170,667. |
$ 70,668. |
$ 58,298. |
| 10 Years |
$ 1,206.41 |
$ 144,769. |
$ 44,769. |
$ 84,197. |
Assuming constant interest rate for entire amortization period.
Each mortgage payment consists of interest plus repayment of part of the principal. In the
early years of a mortgage, a higher portion of your payment is used to pay interest. By
the time you reach the last years of your mortgage, almost all of your payment will be
applied against the principal.
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