Choosing an amortization period on a Toronto mortgage

The amortization period is the length of time it takes to pay off a mortgage. The average amortization period is 25 years, but some are longer and some are shorter. While recent Ontario mortgage rule changes suggested amortization rates would be reduced, it never ended up happening. Choosing an amortization period can be a difficult decision, because on one hand the longer the amortization period, the lower monthly mortgage payments will be. On the other hand, the shorter the amortization rate, the less interest you will pay.

How much will that Toronto home end up costing?

For example, on a $200,000 mortgage amortized over 10 years with a monthly payment of just over $2,200, the total interest paid at a rate of 6% would be $65,000. The highest amortization period available is 35 years, and the interest paid on the same mortgage would total $274,815, but with monthly payments of only $1,130. The payments on the shorter mortgage are twice as high, but the interest paid is over four times less than the longer amortization period. Still, it can be a difficult decision.

The Financial Consumer Agency of Canada has these pieces of advice for those looking to save money on their mortgages no matter which amortization period you choose:

Mortgages can be for different terms, ranging from six months to 10 years. Upon this deadline, the mortgage is up for renewal. The FCAC recommends that Canadians “shop around” to determine if their current mortgage is still the best one suited for them, or if there are better interest rates and payment privileges available elsewhere. Keep in mind that there could be costs involved when changing lenders.

Add an extra payment per year. Do this by making biweekly payments instead of monthly payments, which will grant you one additional payment per year while saving on interest because of more frequent payments.

Some mortgage lenders will allow their borrowers certain prepayment privileges, allowing them to make payments for a certain amount each year without incurring any penalties, but the terms of this allowance differs from lender to lender. Learn how much wiggle room you have with your particular lender, and take advantage of any prepayment privileges.

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