Understanding mortgage amortization

April 3, 2017

Amortisation refers to the number of years it will take to repay your mortgage in full.

When you use 20% or more of the purchase price as your down payment, you can select up to 30 years over which to repay. Less than that down, you will need to run with 25 years of amortisation.

Shorter amortisation periods allow you to accelerate paying off your mortgage. The other advantage is that you will pay less interest the more the timeline shortens. The tradeoff is that you will pay more for your monthly payment.

The mortgage payment and method need to unify with your overall financial plan.

A mortgage of $400,000 at an average fixed rate of 5%, and a 30-year amortisation will have a $2,134 monthly payment, and you will pay $368,506 interest over the 30-year period. Reducing the period to 25 years, you’ll pay more at $2,326, but your total interest expense will be reduced to $297,924, saving $70,882.

 

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