The amortization period means the number of years within which to fully pay your mortgage. The standard amortization period in the banking industry has been 25 years. However, longer or shorter periods are available. It is important as it affects the total amount of interest you'll pay over the duration of your mortgage.
Why would you choose an amortization period that's shorter? For one, a shorter amortization period means that it's possible for you to be free of your mortgage earlier. Also, by agreeing that you will pay off the mortgage within a shorter time period, you are greatly reducing the interest you have to pay over the duration of the mortgage. Another advantage is that you can build your home equity faster with a shorter period of amortization. Equity refers to the difference in the home's market value and any existing mortgage on it. This represents how much money you can affirm as your asset. If you decide to, you can use this equity as security for funding your kids' education, home renovations, succeeding property investments, and many others.
However, there are other considerations to bear in mind. Since you are making the actual number of payments fewer, the amount of each regular payment you will be making will increase. So, if you do not have a regular source of income, or if it is your first time to buy a home and you will be laden with a heavy mortgage, this option may not be the best for you. However, if you can comfortably pay the higher fees and you want to save money, or perhaps you just want to be out of debt as quickly as possible instead of being in debt for an extended time period, it would be a good idea to have a shorter than standard amortization period.
A longer period of amortization also has its advantages. You can have your dream home more quickly with a longer period of amortization. When applying for a mortgage, lenders compute the ceiling amount you can afford as regular payment. That amount is then used to compute the total amount they will loan as mortgage. A longer period of amortization lowers the regular principal amount and interest payment by allocating payments over a longer time period. So you could be entitled to a greater mortgage amount than you expected, or be qualified for your mortgage earlier than you projected. Whichever way, you end up with your dream house sooner than you imagine. A longer period of amortization may appeal to majority of people as regular payments are can be similar or even cheaper than paying rent, but in the long run, it also means having to pay more interest over the duration of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
Why would you choose an amortization period that's shorter? For one, a shorter amortization period means that it's possible for you to be free of your mortgage earlier. Also, by agreeing that you will pay off the mortgage within a shorter time period, you are greatly reducing the interest you have to pay over the duration of the mortgage. Another advantage is that you can build your home equity faster with a shorter period of amortization. Equity refers to the difference in the home's market value and any existing mortgage on it. This represents how much money you can affirm as your asset. If you decide to, you can use this equity as security for funding your kids' education, home renovations, succeeding property investments, and many others.
However, there are other considerations to bear in mind. Since you are making the actual number of payments fewer, the amount of each regular payment you will be making will increase. So, if you do not have a regular source of income, or if it is your first time to buy a home and you will be laden with a heavy mortgage, this option may not be the best for you. However, if you can comfortably pay the higher fees and you want to save money, or perhaps you just want to be out of debt as quickly as possible instead of being in debt for an extended time period, it would be a good idea to have a shorter than standard amortization period.
A longer period of amortization also has its advantages. You can have your dream home more quickly with a longer period of amortization. When applying for a mortgage, lenders compute the ceiling amount you can afford as regular payment. That amount is then used to compute the total amount they will loan as mortgage. A longer period of amortization lowers the regular principal amount and interest payment by allocating payments over a longer time period. So you could be entitled to a greater mortgage amount than you expected, or be qualified for your mortgage earlier than you projected. Whichever way, you end up with your dream house sooner than you imagine. A longer period of amortization may appeal to majority of people as regular payments are can be similar or even cheaper than paying rent, but in the long run, it also means having to pay more interest over the duration of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
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