How Will Selecting an Amortization Period Affect my Mortgage?
If you are a first time home buyer, you need to understand what an amortization period is as opposed to a mortgage term. Amortization Period - An amortization period is the total length of time it will take to pay off your mortgage. On June 21, 2012 Finance Minister Jim Flaherty announced, in an effort to prevent a mortgage bubble, a decrease in the maximum amortization period for new government insured mortgage loans reducing if from 30 years to 25 years. Banks are still allowed to offer 30-year amortization period for mortgage loans with a down payment of 20 per cent or more. Mortgage Term - A mortgage term, usually ranging from 6 months to 10 years, is the time frame you enter into a legal agreement with your lender to pay your lender back. After the term of the mortgage loan has expired, the balance of mortgage is renewed, modified or paid in full. Selecting an Amortization Period Should you select a longer or maximum amortization period, it will take you longer to pay off your mortgage, but the benefit will be a lower mortgage payments. You will also pay more money in interest. Should you select a shorter amortization period, you own your home quicker but the mortgage payments will be higher. To assist you calculate, go to the handy Amortization Calculator to see the various options for setting an amortization period. Can I Change my Amortization Period? When you originally apply for your mortgage and decide on the amortization period, it does not mean you have that keep that amortization period throughout the life of your mortgage, you can choose to shorten or increase (if falls within the maximum amortization period) your amortization period. How this is done is by renewing or renegotiating your Mortgage Loan and depending on your requirements, would be subject to approval. To find out more, contact your local mortgage broker. We hope you have enjoyed the article, "How Will Selecting an Amortization Period Affect my Mortgage?". Be sure to check back again next week!