Canadian Mortgage Amortization

The most common question we are asked in and around Calgary, AB surrounds amortization. The amortization of a mortgage is the total number of months or years that the mortgage payment is calculated over to repay it in full. Amortizations vary in length, but the most common amortizations are 25 year, 35 year and 40 year amortization periods. The longer your amortization the lower your monthly payment, but the more interest you will pay over the entire amortization period.

You can benefit from longer amortizations and lower payments and take advantage of methods to repay your mortgage quickly, and save interest charges over the life of your mortgage. One common reason to consider a longer amortization is during the purchase of your first or second home. Most Canadians, especially in the west, move every 3-5 years. If your current home is not your forever you have an opportunity to explore long amortizations. Mortgage payments are blended payments, meaning that the amount of each payment that goes to principle and interest changes with every payment. During the early years of a mortgage, the majority of the payment goes to interest.

By selecting a longer amortization, you may qualify for a higher purchase price, reduce your payments, and make your lifestyle more affordable. In 3-5 years, if you are like most Canadians and you sell your home, you can then start to look at reduced amortizations for the mortgage on your "forever" home.

Prepayment privileges on most mortgage allow you to pay down 15-20% of the principal amount annually, without penalty. This is an excellent way to effectively reduce your monthly carrying costs, but still achieve mortgage pay down on longer amortized mortgages. Many of our clients will use investment proceeds, tax returns, annual bonuses or inheritances to pay down mortgage balances, annually. Do you want to get really aggressive? Ask your MBN Mortgage Specialist how.