Extended Amortizations

Longer amortizations can lower your mortgage payments.

Can you still get 30 years to pay off your mortgage? Here's when you can, can't, (or maybe shouldn't) get an extended amortization.

What exactly is an 'extended' amortization?

An amortization is the length of time it will take you to pay off your mortgage entirely. The standard amortization for a mortgage is typically 25 years. Having more time to pay off your mortgage is called an 'extended' amortization.

At one time, it was possible to get an extension to 35 or even 40 years. Those options are gone, however, with federal regulations capping down the terms. But 30-year amortizations are still available, depending on the lender, your mortgage down payment and possibly other qualifications.

What are the pros of getting an extended amortization?

In an effort to enhance affordability and increase access to homeownership, extended amortizations of up to 30 years are offered under certain circumstances. Spreading your mortgage amount out over more years will lower your monthly payments.

An extended amortization is a good option if you need to free up some monthly cash flow, and are willing to trade that benefit for more mortgage payments and more interest paid over that extension of time.

What circumstances allow a 30-year amortization?

Extended amortization of up to 30 years are likely available if you have enough down payment for a conventional mortgage (20% or more, for a Loan-to-Value of 80% or less). If you have an insured mortgage (less then 20% down), your only option is a 25-year amortization, until you pay enough down and can refinance, or if you sell your home and buy another one as a conventional mortgage.

You may also need to qualify for an extended amortization through financial or credit requirements. Our True North Mortgage expert brokers can help you sort out these details.

Here's when a 30-year amortization may be an option:

Why wouldn't I want an extended amortization, if I can get one?

If you want (or need) to have lower monthly mortgage payments to free up immediate cash flow, then a longer amortization will help you achieve that affordability. However, it will cost you more interest over the long run.

Let's take a look at a simple illustration:

  • Mortgage principal of $320,000, 5-year term at 1.79% (our current low 5-year fixed-rate available)
  • Keeping this term and rate over a 25-year amortization, your monthly payment would be approx. $1,322, for $76,851 in total interest paid
  • Extended over a 30-year amortization, your monthly payment would be approx. $1,148, for $93,430 in total interest paid
  • You would pay $174 less per month with the extended amortization, but $16,579 more in interest paid over the entire mortgage.

Your mortgage situation is unique. Our highly-trained brokers can outline all the details to help you make a clearer decision based on your financial needs and goals.

What about shortening my amortization instead?

There are many ways to shorten your amortization to save more cash, despite the length you signed on for when taking out your mortgage. But it depends on how flexible your mortgage is for allowable pre-payment privileges, or, if you come into a large influx of funds, any pre-payment penalties that would factor in.

  • Paying more down on your principal as you go will shorten your amortization, and save you (potentially a lot of) money on interest.
  • You may wish to get a variable-rate term, which can take advantage of lower rates to help pay more down on your principal during that term.
  • At renewal time, you may be able to increase your monthly payments to formally reduce your amortization, depending on your mortgage fine print and lender (though this option may require a refinance).

Need a helpful mortgage renewal reminder? Get one here.

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