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If you have an insured mortgage (less than 20% down), then you will require mortgage insurance through CMHC, Genworth, or AIG (the newest mortgage insurer to enter into Canada). Within the walls of these insurers, you will find the option to pick and choose how long you would like the life of the loan to be. In Canada today, the ability to tailor your mortgage around the length of time is a great benefit; there is the traditional 25 year amortization, but now we have the 30 year, 35 year, and 40 year amortization period. There is an insurance sub-premium applicable to extend your amortization period (.20% per every 5 year increment), however the pros of this allowance outweighs the cons against it. Not only does it allow you to qualify for “more home” (which is good in today’s housing market), but it also brings your monthly payments down. What about the argument of having your mortgage for the NEXT 40 YEARS?? If you think signing onto a 40 year amortization period is daunting and intimidating, you’re not alone. But consider this – with the ability to pre-pay your mortgage up to 20% of your regular monthly payments every month, or lump summing up to 20% of original principle amount every calendar year, your 40 year amortization is quickly reduced to reflect more like a 25 year amortization period…or LESS.
Ok – so you don’t have up to 20% of the total monthly payment to ADD ON to the payments, and your “lump sum” money at the end of every calendar year goes toward your vacation! That’s ok, even by merely changing your payment frequency; you can eliminate years off of your amortization period. Let’s have a look at the way to decrease your 40 year amortization period more quickly, without you even KNOWING it!
Example: We’ll keep round, simple figures - $100,000.00 mortgage amount / 5 yr. term @ 5.00% / 40 year amortization:
Payment Frequency |
Principle Paid |
Interest Paid |
Balance |
Amoritization Left |
Monthly |
$6,046.56 |
$24,038.64 |
$93,953.44 |
30 yrs |
Bi-Weekly Regular |
$6,046.75 |
$25,005.35 |
$93,953.23 |
30 yrs |
Bi-Weekly Accelerated |
$8,925.40 |
$23,666.90 |
$91,074.60 |
23 yrs 10 mos |
Weekly Regular |
$6,046.88 |
$23,990.92 |
$93,953.12 |
30 yrs |
Weekly Accelerated |
$8,944.40 |
$23,649.12 |
$91,055.52 |
23 yrs 9 mos |
Quite impressive! To get a better comprehension for the payment frequency, see “payment frequency”. It truly is a great benefit to be able to apply for an extended amortization period to get you into ownership….FASTER!
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