Extended Amortization
The amortization of your mortgage means the number of years the lender allows you to pay your mortgage back. For example, if your mortgage is amortized over 25 years, you have 25 years to pay back your mortgage in full.
Today, the maximum amortization available is 30 years. You have the option to choose any amortization you’d like as long as the amortization does not exceed 30 years. The reason why you may choose to amortize your mortgage over a longer period of time would be to keep your mortgage payments lower or, to be able to qualify for a larger mortgage.
The increased amortization is a great way to keep your payments low, allowing you to make extra payments on your own terms. Every extra payment you make towards your mortgage pays down the principal balance, thus shortening the amortization. For other tips on how to pay down your mortgage quickly, see section How to Pay Down Your Mortgage Faster.
Example
For example, the monthly payments of a $400,000.00 mortgage at 5.79% amortized over 25 years would be $2509.51. The monthly payments for the exact same mortgage amortized over 30 years would be $2327.02.
Another example is in the case where a person earns a gross annual income of $60,000.00. Assuming annual property taxes of $1800/year, a mortgage interest rate of 5.79% and a 5% downpayment, amortized over 25 years, the maximum approvable mortgage would be $310,000.00. However, amortized over 30 years, the maximum mortgage can be increased to $340,000.00.
Find out what your monthly mortgage payments would be. Click here.