Minimize your interest payments and own your home faster with a 15-year amortization period.
A 15-year mortgage isn’t the most popular amortization period because the monthly payments are much higher than that of, say, a 25-year period. But if you can make the payments, you stand to save thousands of dollars in interest over the life of your mortgage.
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How does a 15-year mortgage compare to other amortization periods?
As you may have guessed, 15-year mortgages are paid off in 15 years — just over half the time of the most common 25-year mortgage. While a 15-year amortization period is not the most popular option, it’s viewed very positively because homeowners will own their home much faster and pay much less in interest over the life of the mortgage.
But the trade-off for lower interest and a quicker payoff period is higher monthly payments. Let’s say you’re looking at a $200,000 15-year fixed-rate mortgage with an interest rate of 3%. You’ll pay approximately $1,379.38 in mortgage payments each month and a total of $48,287.82 in interest over the life of the mortgage.
If you compare this with a 25-year fixed rate mortgage at 3%, you might pay approximately $946.49 per month in payments, but a staggering $83,947.30 in interest over time – and this doesn’t even include the closing costs and ongoing expenses like condo fees, utilities and maintenance fees, home insurance and mortgage insurance (if you put down less than 20%).
For a $200,000 mortgage …
Total Interest Paid
This is sample data. The rate you’re offered will depend on the loan term, the interest rate (fixed vs. variable, your down payment, credit score and income. Thanks to the high monthly payments, it’s usually harder to qualify for a 15-year mortgage than it is for a 20-, 25- or 30-year mortgage.
A 15-year mortgage has helpful benefits including:
Less interest. You’ll pay much less interest over the life of your mortgage than you would with a longer amortization period.
Shorter payoff period. Pay off your home almost twice as fast as you would with a 25-year mortgage.
Build equity faster. Pay down the principal balance and increase your equity at a faster pace.
Stable payments. Opt for a fixed-rate mortgage and your monthly payment won’t fluctuate, even if the market does.
What should I watch out for?
Although you’ll save money and own your home faster, taking out a 15-year mortgage does have pitfalls:
Higher monthly payments. You’ll typically pay hundreds more per month than you would on a mortgage amortized over a longer period.
Modest or limited housing options. Since the payments are higher, you may qualify for a less expensive property than if you’d stretched the mortgage out over 20-, 25-, 30- or 35- years.
Stricter eligibility requirements. You’ll need to prove you have a strong credit history and sufficient income to make your higher monthly payments.
Tight cashflow. Having a shorter amortization period doesn’t leave much room for any cashflow shortages during financially tough times. Should you lose your job or have financial difficulties, a higher monthly payment might see you defaulting on your mortgage.
Is a 15-year mortgage right for me?
With a 15-year mortgage, you need to be disciplined with your budget. If you can afford the monthly payments while still saving for the future, a 15-year mortgage may be the right fit for you.
This term could also be attractive to borrowers who want to be debt free by the time they retire. It could be beneficial for those who want to tap into the equity in their home to cover large expenses such as renovations.
On the other hand, if your income is unstable or you’re interested in investing more of your money, you may want to opt for a longer amortization period.
Variable rate vs fixed-rate 15-year mortgages
Variable rate mortgages come with fluctuating interest rates that are not fixed for the mortgage term. A variable rate is typically expressed as the prime rate + or – a number. The prime rate can change based on the economy and is determined by the Bank of Canada’s overnight rate. While you might wonder why anyone would want to risk rising interest rates, a variable rate is usually fairly lower than a fixed-rate, especially for the first few years that you pay your mortgage. Over the life of the mortgage, a variable rate can save you a fair amount of money – if the prime rate stays competitive for the long run.
A fixed interest rate, on the other hand, will stay fixed for the term – whether that’s as low as 6 months or as high as 10 years. Once your term ends, you can refinance with the same lender or switch to another lender. A fixed-rate usually starts out higher than a variable rate, but may end up lower than the variable rate within a few years, again depending on the prime rate.
Which makes for the better choice depends on if you prefer knowing how much you’ll pay each month or whether you’re willing to take a risk on the prime rate staying low and competitive. What could be a better choice might be taking out a convertible mortgage, which allows you to reap the benefits of a low variable-rate for a few years and then switch to a fixed-rate mortgage once the prime rate rises. Another choice would be a hybrid or combination mortgage, which is usually a 50/50 combination of both a fixed-rate and a variable rate mortgage.
Which lenders offer a 15-year mortgage?
A handful of banks, online providers and credit unions offer 15-year mortgages. Since 25-years is the most popular amortization period in Canada, many homeowners start out with this amortization period and refinance to a shorter term, such as 15- or 20- years, once they know they can handle their repayments.
A 15-year mortgage is ideal for those who want to slash their interest payments and pay off their mortgage much faster. While borrowers benefit from paying less interest over the life of their mortgage, the trade-off is significantly higher monthly payments.
Not sure whether a 15-year amortization period is feasible? Compare the most common mortgage amortization period of 25-years in our guide here.
Frequently asked questions
Yes, you’re free to pay off your 15-year mortgage ahead of time. Be aware, however, that some lenders charge a prepayment penalty, while other lenders will set a yearly cap on how much you can payoff each year. Ask your lender if this applies to your mortgage or check your mortgage contract.
Yes, once you term matures. If interest rates have dropped since you were approved for your mortgage or your rate isn’t as low as you’d like, you can refinance to get a better rate. You could also potentially refinance your mortgage to a longer – or shorter – amortization period. When you refinance, you’re applying for a new mortgage, so know that you may need to pay fees and closing costs.
If the purchase price of a property is less than $500,000, the minimum down payment is 5%.
If the purchase price is between $500,000 – $999,999, the minimum down payment is 5% on the first $500,000 and 10% on any amount over $500,000.
If the purchase price is $1,000,000 or more, the minimum down payment is 20%.
The amortization period is the total length of your mortgage, while a term is the length of time you lock in your rate and terms for. Once your term ends, which is typically anywhere from 6 months to 10 years, you’ll need to refinance your mortgage.
Yes, although 25-year amortization periods are the most common in Canada, you can get a 30- or 35- year mortgage – however you’ll need to pay at least a 20% down payment, as insured mortgages cannot exceed 25-year amortization periods.
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