What is a Mortgage Amortization?

 

Amortization periods are primarily the overall length of the mortgage.  Ultimately the amortization period determines the monthly payment of your mortgage.  The longer the amortization the lower the payment and vice versa, the lower the amortization the higher the monthly payment.  For example say you have a $300,000 mortgage at a rate of 2.99% and it is amortized over 25 years, your monthly payment would be $1,421.07, then say you have the same mortgage amortized over 10 years your monthly payment becomes $2,895.44.  Although you have a shorter mortgage life the mortgage payment becomes quite high. 

 

Amortization periods also determine how much interest is paid and how much principal is paid.  If you were to amortize a mortgage over 25 years then you would pay quite a lot in interest vs. amortizing a mortgage over 10 years then you would pay a lot more principal. 

Nowadays, unless you are putting more than 20% down on the purchase of a house the maximum number of years you can amortize a mortgage over is 25 years.  If you are putting down 20% or more then you could have the option to amortize the mortgage over 35 years. 

 

What is the term and how it is related to the mortgage amortization?  The mortgage term is simply the term for the interest rate you have.  Within a mortgage amortization period you could have 5, 5 year terms to make up a 25 year amortization, or more or less depending on the terms you choose throughout.  At the end of your mortgage term you have to renegotiate your interest rate. 

 

Contact me for additional information about this.