Mortgage Amortization

The mortgage amortization period is the length of time in which the mortgage must be repaid and can vary based on the borrower’s circumstances.      In Canada, the mortgage amortization period cannot extend beyond 25 years, the period of time for non-conventional high ratio mortgages requiring mortgage default insurance.  The mortgage amortization period for a standard conventional mortgage with a Loan-to-Value ratio below 80%, typically does not extend beyond 30 or 35 years. 

When lengthening amortization periods, lower monthly mortgage payments result. However, the total interest cost will be higher and it will take longer to pay down or pay off the mortgage.  

Lenders take many items into consideration when establishing an amortization period for a mortgage.  They will look at the borrower’s age and current financial situation, existing interest rate conditions, the individual’s ability to make payments looking at TDSR and GDSR (Total Debt Service Ratios and Gross Debt Service Ratios), and other factors. 

When borrowers shop around for mortgage rates and speak with advisors about monthly mortgage payments, it is important to compare payments over the same amortization period. 

Many borrowers often confuse amortization rates with the terms of a mortgage.  The terms of a mortgage is the time period a lender and the borrower are under legal obligations to each other.  Amortization refers to the length of time (usually expressed in years) a mortgage and mortgage payments are spread over. 

Amortization schedules are commonly reviewed prior to borrowers closing on a mortgage. 

In Summary:

  • Amortization periods cannot exceed 25 years for non-conventional mortgages
  • Amortization periods are typically 30 or 35 years for conventional mortgages, and these terms and limits are set by lenders directly
  • Longer amortization periods result in lower monthly payments
  • Longer amortization period result in a higher amount of interest being paid monthly
  • Longer amortization periods result in a higher amount of lifetime interest being paid on the mortgage
  • Shorter amortization periods result in higher payments. However, borrowers are more likely to pay off their homes quicker if they do not refinance

Borrowers need to ensure they fully understand what they are signing on documents and the exact features of the mortgage being offered to them.  Professional financial advice is available from most mortgage brokers and certain financial advisors.   

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April 27, 2017

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