Reducing Your Amortization Period
Your amortization period – the time you take to pay back your entire mortgage principal and interest – can be as long as 25 years. If you choose a shorter amortization period, you can save a lot of money.
These charts compare interest costs and monthly payments on an $80,000 mortgage amortized over 15 years with those for the same mortgage amortized over 25 years. You can see how great the savings are with the shorter amortization period!!
15 Year Amortization
Interest Rate Monthly Payment Total Repaid * Total Interest Paid
6.0 % $671.91 $120,943.00 $40,943.00
7.0 % $714.60 $128,628.00 $48,628.00
8.0 % $758.53 $136,533.00 $56,533.00
9.0 % $803.62 $144,650.00 $64,650.00
25 Year Amortization
Interest Rate Monthly Payment Total Repaid * Total Interest Paid
7.0 % $56 $168,096.00 $88,096.00
8.0 % $610.58 $183,165.00 $103,165.00
* Assumes constant interest for amortization period.
You can reduce your amortization period by:
* Increasing the amount of your mortgage payments
* Increasing the frequency of your mortgage payments
* Making lump-sum pre-payments or “double-ups” during the term of
your mortgage and at renewal time
* Selecting a shorter amortization at renewal
Making Lump Sum Prepayments and “Double-ups”
Another way to save on interest costs and cut down your amortization period is to reduce your mortgage principal by making lump sum payments and double-ups.
You may make lump-sum prepayments of any amount you wish on your mortgage principal at renewal time.
If you choose a fixed-rate mortgage you may pay up to 15% of the original amount of your mortgage once in every 12 month period.
A lump-sum prepayment of $2,000 a year can make a substantial difference in the time it takes to pay off your mortgage. Here’s an example of an $80,000 mortgage at 8.00%
Effect of a Payment Standard Mortgage
25 Year Amortization
$2000.00 Annual
Mortgage Repaid in Months 300 179
Total Interest Charged $91,818.00 n/a
Interest Savings vs 25 Year Mortgage $610.58 $41,469.00
*Calculated half-yearly, not in advance.
Once a month, on a payment date, you can choose to double-up the equivalent of monthly mortgage payment. The amount of this double-up payment is applied against the principal balance of your mortgage.
Lump sum prepayments and double-ups allow you to build your equity faster and save money, and building your home equity is usually one of the best investments you can make.
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