The amortization period means the number of years within which to fully pay your mortgage. The standard amortization period in the banking industry has been 25 years. However, longer or shorter periods are available. It is important as it affects the total amount of interest you'll pay over the duration of your mortgage.
Why would you choose a shorter period of amortization? A shorter amortization period means you can be mortgage-free earlier. Since you pay off your mortgage more quickly, the amount of interest you pay is considerably less. Also, you establish home equity faster with a shorter period of amortization. Equity means the difference in the home's market value and any outstanding mortgage on it. It's the worth in money you can declare as your asset. This equity can then be used as security for funding the education of your kids, home renovations as well as other property investments, and many more.
There are, however, other things to consider. Reducing the total number of mortgage payments results in increasing the amount of each regular payment. If you have an irregular income or if you're a first-time home buyer and will be having a large mortgage, it might not be the best option for you.
A longer period of amortization also has its advantages. You can have your dream home more quickly with a longer period of amortization. When applying for a mortgage, lenders compute the ceiling amount you can afford as regular payment. That amount is then used to compute the total amount they will loan as mortgage. A longer period of amortization lowers the regular principal amount and interest payment by allocating payments over a longer time period. So you could be entitled to a greater mortgage amount than you expected, or be qualified for your mortgage earlier than you projected. Whichever way, you end up with your dream house sooner than you imagine. A longer period of amortization may appeal to majority of people as regular payments are can be similar or even cheaper than paying rent, but in the long run, it also means having to pay more interest over the duration of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
Why would you choose a shorter period of amortization? A shorter amortization period means you can be mortgage-free earlier. Since you pay off your mortgage more quickly, the amount of interest you pay is considerably less. Also, you establish home equity faster with a shorter period of amortization. Equity means the difference in the home's market value and any outstanding mortgage on it. It's the worth in money you can declare as your asset. This equity can then be used as security for funding the education of your kids, home renovations as well as other property investments, and many more.
There are, however, other things to consider. Reducing the total number of mortgage payments results in increasing the amount of each regular payment. If you have an irregular income or if you're a first-time home buyer and will be having a large mortgage, it might not be the best option for you.
A longer period of amortization also has its advantages. You can have your dream home more quickly with a longer period of amortization. When applying for a mortgage, lenders compute the ceiling amount you can afford as regular payment. That amount is then used to compute the total amount they will loan as mortgage. A longer period of amortization lowers the regular principal amount and interest payment by allocating payments over a longer time period. So you could be entitled to a greater mortgage amount than you expected, or be qualified for your mortgage earlier than you projected. Whichever way, you end up with your dream house sooner than you imagine. A longer period of amortization may appeal to majority of people as regular payments are can be similar or even cheaper than paying rent, but in the long run, it also means having to pay more interest over the duration of the mortgage.
You don't have to stay with whatever period of amortization you originally chose when you applied for the mortgage. You can always shorten the period of amortization and use options like accelerated payment, doing extra payments like Double Up, or a yearly lump sum prepayment of the principal to save on interest costs. Always re-assess your amortization strategy during mortgage renewal. As your career and income gets better, you can increase the amount of each regular payment by up to 10% once a year. These prepayment features can shorten your period of amortization by years, and save money on interest.
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Amortization is also applied to accounting ledger real estate or hard commodities of certain assets under accounting rules, particularly intangible assets, in a manner analogous to depreciation.
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