Does just the mention of the word “amortization” make your eyes glaze over and your brain get fuzzy? If so, there’s no better cure for this condition than a little basic knowledge. As an experienced Calgary mortgage broker, Candice Light understands the process can be intimidating, but we guarantee to take the mystery out of mortgages. It’s time to look behind the curtain. These facts and figures are for you!
What Does Amortization Mean?
When you purchase a home with a mortgage, you then pay it back over a specific period of years. In its simplest terms, amortization is the length of time you will take to pay off your mortgage. When you consider your options and choose your amortization period, you are taking control of your financial future.
In the past, it was actually possible to find forty-year mortgages, but today, the standard amortization period is twenty-five to thirty years, depending on the whether you have a high-ratio or a conventional mortgage.
What’s The Difference?
- A high-ratio mortgage means the loan-value to home-value ratio is higher than a traditional mortgage. With a high-ratio mortgage, buyers may be able to make a down payment as low as 5 per cent. High-ration mortgages must be insured.
- A conventional mortgage requires at least 20 per cent down. With this type of mortgage, buyers do not have to purchase mortgage loan insurance.
Why Does the Amortization Period Matter?
Homebuyers often put a great deal of effort into finding great interest rate, and you should work with a Calgary mortgage broker to lock into the best possible rate, but the amortization period you choose will have much more impact on how much you pay for your home over the life of your loan.
If you can afford to put more money down or make a higher monthly payment, you can choose a shorter amortization, and that means you will be paying far less in interest. While you might be making a larger monthly payment, more of it will be going toward the principal. Your home equity will grow quicker, and you will be mortgage-free much sooner. It might be tempting to choose a longer amortization and get a lower payment, but it makes good financial sense to choose the shortest amortization you can afford.
How Can Your Calgary Mortgage Broker Help?
Even when you begin to understand the language of mortgages, there is no reason to go it alone. An experienced broker will serve as your guide through the pre-approval process right up to closing. They will discuss your financial goals with you so you can make an informed decision on what is best for you, your family, and your future. Choosing your amortization period is a great way to control your own destiny. Consider these facts:
- The amortization period you select is not set in stone. Just because you chose a thirty-year mortgage when you bought your home, you are not stuck with it for the duration. When you renew your mortgage, re-evaluate your amortization at the same time.
- A shorter amortization might be within your reach. Depending on the price of your home, increasing your monthly payment by $50-100 could bring your loan to a close years earlier.
- Be aware of pre-payment penalties. If you come into a large sum of money and decide to pay off or make a large payment on your mortgage, you could have to pay a fee. Some mortgages include “Interest Rate Deferrals” that take effect if you pay off your mortgage before the amortization date.
Choosing your amortization period puts your financial future in your hands. Your Calgary mortgage broker will guide you along the way, but you are the one in charge. Mortgages by Candice offers a wealth of knowledge and expertise and a full range of services —whether you are buying your first home, renewing, refinancing, or renovating. Contact Candice today to learn more about how you can be mortgage-free years earlier than you ever imagined!