Think You're Paying Too Much Interest If You Amortize Over 35 Years? Think again!
Here's this Vancouver Mortgage Broker`s opinion...go as long as you can and here`s why!
•· $1,000 mortgage monthly payment / 25 years is equivalent to 845.32 over 35 years.
•· 4.30% interest rate (amortization periods do not mean a higher interest rate)
25 YEAR MORTGAGE:
PAYMENT INTEREST PRINCIPLE
#1 $653.96 $346.06
#2 $652.73 $347.29
#3 $651.50 $348.52
#4 $650.27 $349.75
#5 $649.03 $350.99
35 YEAR MORTGAGE:
PAYMENT INTEREST PRINCIPLE
#1 $653.96 $191.34
#2 $652.73 $192.02
#3 $651.50 $192.70
#4 $650.27 $193.39
#5 $649.03 $194.07
- INTEREST PAID is the same in both cases, no matter the amortization. Plus why strap yourself down with payments higher than you need to.
- The best solution is to increase your payments by the allowed amount (typically 10% to 20%) and go bi-weekly. If the worst should happen, for example a job loss or pay decrease, at least you have the option to revert back to monthly payments and decrease your payments.
- The longer amortization can help your Buyers qualify for the home they really want as the LOWER principle and interest payment keeps the debt servicing ratios down...translating into a higher overall approval amount.
Why not take your monthly savings and tackle higher interest rate debt of contribute to an RRSP and take the tax savings and put it down on the mortgage. If your Buyers say `but mom always told me not to borrow longer than 25 years`now you can help us help your clients help themselves!
Thanks for reading!
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