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Amortization Period
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30-year mortgage amortization period
Free up your cashflow with low monthly payments on a 30-year mortgage.
A 30-year mortgage can offer stability and low monthly payments – but this convenience comes with a price. You’ll pay thousands of dollars more in interest over the life of your mortgage, and to be eligible for a 30-year amortization period, you’ll need to put at least 20% down on your new home, as insured mortgages cannot exceed amortization periods of 25-years.
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How does a 30-year mortgage compare to other amortization periods?
The biggest difference between a 30-year mortgage and shorter amortization periods – like 25- or 15- years – is the amount of interest you’ll pay over the life of the mortgage. Depending on your interest rate, you could end up paying close to your initial principal in interest alone.
On a 30-year $200,000 mortgage at a 3% APR, you might pay a low payment of roughly $841.21 per month. But your total interest paid by the end of the mortgage would be approximately $102,833.90.
The same mortgage amount and interest rate on a 15-year amortization period would result in a total of approximately $48,287.82 interest, but with higher monthly payments of $1,379.38.
For a $200,000 mortgage …
| 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 | – |
This is sample data. The rate you’re offered will depend on a variety of different factors including the loan term, the interest rate (fixed vs. variable), your down payment, your credit score and your income, among other factors.
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What are the benefits of a 30-year mortgage?
A 30-year mortgage offers a few useful benefits for homeowners, including:
- Free-up your cashflow. Lower monthly payments mean more money to stash away in savings or other investments.
- Access to a bigger mortgage. Since your monthly payments will be lower, you could potentially be eligible for a larger mortgage amount.
- Avoid paying mortgage insurance. Since you’re required to pay a down payment of at least 20% on a 30-year mortgage, you’ll avoid the extra cost of paying CMHC (or mortgage insurance).
What should I watch out for?
Despite their ability to free-up your cash flow, 30-year mortgages come with a few pitfalls:
- Your down payment. You can’t get a mortgage longer than 25-years unless you put down at least 20% on your home.
- More interest. Smaller monthly payments over a longer time means paying more interest in the long run.
- Build equity slower. Compared to a shorter term mortgage, it takes longer to build equity and truly own your home with a 30-year mortgage.
Is a 30-year mortgage right for me?
The lower monthly payments of a 30-year mortgage offer flexibility with your income and cashflow — an asset if big life changes are on the horizon. Down the road, you’ll have the option to refinance to shorter terms if you can afford larger monthly payments.
That said, if you can avoid the high interest on a 30-year mortgage, it could save you thousands of dollars in the long run. If you can comfortably pay your mortgage and living expenses – and want to quickly build equity in your home – you may want to consider a shorter amortization period of 10-, 15- 20-, or 25-years.
Variable rate vs fixed-rate 30-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.
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.
Which banks offer a 30-year mortgage?
Most banks, credit unions and online lenders offer 30-year amortization periods. Keep in mind you’ll need to pay at least a 20% down payment on your home in order to be eligible for an amortization period of more than 25-years.
Bottom line
When it comes to flexibility and stability, a 30-year mortgage could be the answer. Low monthly payments can help you plan your financial future – but it comes at the high price of paying thousands of dollars more in interest.
If you don’t plan on living in the house for 30 years or you don’t like the idea of paying more interest over the life of the mortgage, compare shorter amortization periods to find one that better suits your needs.
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