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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.
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%).
Mortgage term | Monthly Payment | Total Interest Paid | Savings |
---|---|---|---|
10 years | $1,929.50 | $31,540.01 | $16,747.81 |
15 years | $1,379.38 | $48,287.82 | $17,472.80 |
20 years | $1,107.34 | $65,760.62 | $18,186.68 |
25 years | $946.49 | $83,947.30 | $18,886.60 |
30 years | $841.21 | $102,833.90 | $19,569.88 |
35 years | $767.63 | $122,403.78 | – |
For a more detailed explanation of mortgages, check out our guide here.
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A 15-year mortgage has helpful benefits including:
Although you’ll save money and own your home faster, taking out a 15-year mortgage does have pitfalls:
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 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.
For a more detailed explanation of variable rate mortgages, check out our guide here.
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.
Learn more about fixed-rate mortgages here.
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.
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.
A complete guide to US mortgages for Canadian citizens.
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