The Amortization Difference

The amortization term is the lifetime of your mortgage. Changing your amortization term greatly affects your payment amount; making it longer will make your payments lower. The amortization term also affects how much money you will be paying in interest. A longer amortization period will cost you more in interest to borrow the funds from the lender.

The amortization value can be set shorter to more aggressively pay off your mortgage faster or longer in order to decrease you monthly payment obligations. Locking in to the shorter amortization term commits a client to a higher principle payment each month and guarantees their mortgage to be paid off in the time frame they have planned to do so. By doing this we are setting the lifetime of your mortgage to be shorter. In the opposite scenario, the clients select a longer amortization to keep their payments lower but this will end up costing them more in interest overall.

Remember that you can also aggressively affect the time you have a mortgage for by using your prepayment options. One thing that works for some of our clients is to have obtain a mortgage with a long amortization to ensure that the minimum payment required is low if they are expecting a decrease in income over the term of the mortgage. Then they get a mortgage where they can make lots of extra payments and they use these as often as they can. This allows them to pay down their mortgage faster than the long amortization they have selected but gives them the flexibility to pay less in the months that they need to. Paying down your mortgage principle faster will also decrease the lifetime over which you pay your mortgage.