Mortgage Smart Tip for First Time Home Buyers – Amortization

Buying your first home can be a daunting process including figuring out the right mortgage and options for you.  One part of this is knowing about what Amortization to select.  Here let’s talk about its definition and what it really means, the options available and how do you choose the right one for you?

Definition:  The time over which all regular payments would pay off the mortgage in full.  The number of payments used to calculate the actual mortgage payment.  This determines the principal and interest portion of each payment.  The interest portion is higher to start with and slowly decreases over time, although the payment (on a fixed term) remains the same

Options:  Amortizations can range from less than 5 years to as much as 35 to 40 years. 

However, your options will depend on the following:

       Less than 20% down payment the maximum amortization is 25 years (as per default insurer guidelines)

       More than 20% down payment then up to 35 years but depends on the lender and you qualifying

Remember;

       Some lenders do not offer longer amortizations beyond 25 years

       Some lenders have a minimum amortization they offer

So how do you select the right one for you?

       Firstly, determine which amortization you actually qualify for, and then

       Adjust your amortization up or down so that the monthly payment is within your personal budget

       The shorter the amortization, the less interest you will pay