Real Estate

25 year or 30 year amortization?

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  • Sep 3rd, 2015 10:54 am
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[OP]
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May 6, 2014
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25 year or 30 year amortization?

With all things being equal, is 25 year or 30 year amortization better?

I have a 5 year variable rate.
Goal is to pay off home in 5 to 9 years.
20% down on a 350k condo.

Does it make any difference?

I guess the better question is if you know that you would be paying home off in 5-10 years roughly, would reducing the amortisation term be better?
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Deal Fanatic
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Apr 11, 2008
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flatblack wrote: With all things being equal, is 25 year or 30 year amortization better?

I have a 5 year variable rate.
Goal is to pay off home in 5 to 9 years.
20% down on a 350k condo.

Does it make any difference?

I guess the better question is if you know that you would be paying home off in 5-10 years roughly, would reducing the amortisation term be better?
The different is how much maximum you can pay each year for 5 years. It's not going to be huge difference since you can double your payment and pay a lump sum each year.

The other difference is whether you will qualify for the mortgage, but probably not going to be issue in your case.
Deal Fanatic
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Apr 29, 2008
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Montreal
what about a 10 year amortization then?

A longer amortization = lower payment.
[OP]
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May 6, 2014
95 posts
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If I'm going to double up monthly payments and put in the annual lump sum, does it hurt me to pick 25-30 years?

Would it be better to pick 15 or 20?

I'm guessing this really comes down to risk.
Deal Fanatic
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Apr 11, 2008
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flatblack wrote: If I'm going to double up monthly payments and put in the annual lump sum, does it hurt me to pick 25-30 years?

Would it be better to pick 15 or 20?

I'm guessing this really comes down to risk.
In your case, a 25 year amortization would have a monthly payment of 1185, 30 year would be 1033. Add in double payment and 15% lump sum, 25 years would be $70440/year and 30 years would be $66792/year.

a 15 year amortization would have a monthly payment of $1800 and yearly maximum payment of $85200.

The longer amortization period would give you more flexible downwards and the shorter amortization period would give you more flexible upwards.

In all cases, you can pay off your mortgage in 5 years.
Deal Fanatic
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Apr 20, 2011
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Vancouver
35 year amortizations are still available as well.
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Jul 16, 2003
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Toronto
As long as the lender allows you enough pre payment options to pay off the loan as you plan, the amortization you pick will barely matter. Quite often people stretch the amortization to a longer term only as a precaution, in case of someone in the household loses a job or similar situation, so that they can revert the mortgage payment to a smaller amount be keep the bills paid until the income level normalizes. What you could do is match the initial amortization to the exact minimal payment you are 100% comfortable with, then only exercise the pre payment options when the additional funds are available and you want to use them. By the way, you do not need to get exact 15, 20 or 25y.. you can get 22y, 23y, 19y, etc... you can even ask for a 22y and 3 months, etc.
flatblack wrote: If I'm going to double up monthly payments and put in the annual lump sum, does it hurt me to pick 25-30 years?

Would it be better to pick 15 or 20?

I'm guessing this really comes down to risk.
Andre Oliveira - Mortgage Agent
Mortgage Intelligence - FSCO# 10428
Deal Addict
May 12, 2004
2698 posts
204 upvotes
Mississauga
who offers 30 or 35 year ammoritzations? And are there fees associated with getting these if we are buying a new property?
[OP]
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May 6, 2014
95 posts
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TD offers 30 year (35 not sure, never asked). No special fees in my case. I'm putting 20% down and my mortgage amount is sub-$300k, not sure if that makes any difference. Solid credit.
Deal Addict
May 10, 2006
2720 posts
101 upvotes
I would say go for a mortgage with a larger amortization period (30 year) but open to throw in as much cash as you have available. Your better off not locking yourself in to high monthly payments then possibly come on hard times and not being able to make those payments.

I was laid off at one point and glad I had taken this route.
Deal Addict
Jun 20, 2011
1933 posts
765 upvotes
VANCOUVER
While you are researching terms and payments, you may also want to be informed about the penalty to break your mortgage (for whatever unforseen reason). Some people get blindsided. So make sure you ask your mortgage person you are dealing with.
Deal Expert
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Aug 2, 2010
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Here 'n There
flatblack wrote: With all things being equal, is 25 year or 30 year amortization better?

I have a 5 year variable rate.
Goal is to pay off home in 5 to 9 years.
20% down on a 350k condo.

Does it make any difference?

I guess the better question is if you know that you would be paying home off in 5-10 years roughly, would reducing the amortisation term be better?
Better depends on what your value matrix is. A shorter amortization results in less total interest being paid and the principal being paid off faster, but the monthly payments higher. So, given you want to pay it off faster then definitely reduce the am as much as you can.

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