Why choose a longer amortization period?
Choosing a longer amortization period can get you into your dream
home sooner than choosing a standard or shorter period.
When you apply for a mortgage, lenders calculate the maximum
regular payment you can afford. They then use that amount
to calculate the maximum amount they will lend to you for
your mortgage.
As a shorter amortization period results in higher regular payments,
a longer amortization period reduces the amount of your regular
principal and interest payment by spreading your payments over
a longer period of time. So you could qualify for a higher mortgage
amount than you originally anticipated. Or you could qualify for
your mortgage sooner than you had planned. Either way, you end
up in your dream home sooner than you thought possible.
Get your dream home sooner with a longer amortization.
Regular payments are less with a longer amortization.
Again, this option is not for everyone. While a longer amortization
period will appeal to many people because the regular mortgage
payments can be comparable or even lower than paying rent, it does
mean that more interest will be paid over the life of the mortgage.
The chart below will help you to see differences between longer and
standard amortization periods.
Compare the difference
*
: Five-year fixed-rate closed mortgage
Details 25 Year 30 Year
Mortgage principal $100,000 $100,000
Monthly mortgage payment
(Principal & Interest)
$639.81 $594.83
Monthly payment reduction
compared to 25 year amortization
$0 $44.98
Term interest costs
(5 years at 6%)
$28,225.07 $28,658.59
Additional term interest costs over
25 year amortization
$0 $433.52
Balance at maturity $89,836.47 $92,968.79
You have the flexibility to shorten your amortization period.
Regardless of which amortization period you select when you
originally apply for your mortgage, it does not mean you have to
stay with that period throughout the life of your mortgage.
You can always choose to shorten the amortization period and
save on interest costs by choosing an accelerated payment option,
making extra payments when you can, such as a Double Up
®**
or
an annual lump sum principal prepayment.
You should review your options at each renewal to shorten
your amortization and pay off your mortgage faster.
It also makes good financial sense for clients to re-evaluate their
amortization strategy every time their mortgage comes up for renewal.
Then, as you advance in your career and begin to earn a better
salary over time, you can simply increase the amount of your
regular payments by as much as 10% once each year. All these
prepayment features will take years off your amortization period,
and save you money on interest.
Compare interest costs
Details 15 Year 20 Year 25 Year 30 Year
Interest costs for
full amortization
**
$51,178.12 $70,924.89 $91,940.69 $114,132.28
Additional
interest savings/
costs for the
amortization
***
($40,762.57) ($21,015.80) $0.00 $22,191.59
If you would like to discuss amortization options or have any
questions about the flexible payment options that can shorten
your amortization period, please speak with an RBC
®
mobile
mortgage specialist or visit your nearest RBC branch.
For mortgage calculators visit
www.rbcroyalbank.com/mortgagecalculators
®
Registered trademarks of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada.
*
Assumes that Loan to Value is 80% or greater and no default
insurance is required. If mortgage is default insured and the amortization selected is greater than 25 years, an additional default insurance is required. The example assumes that default
insurance is paid from the client’s own resources.
**
Calculated semi-annually, not in advance.
***
Over the life of the mortgage, assuming a constant interest rate throughout the amortization
period. Charts are for illustrative purposes only. These examples assume that interest costs remain the same throughout the entire amortization period, that no payments are missed and
that no additional payments are made. All lending products are offered by Royal Bank of Canada and are subject to its standard lending criteria for residential properties.
VPS62376 28852 (03/2011)